Bonds

US watchdogs don’t eat their cooking on ratings

24 Jun 2008

The SEC says money funds should be able to ignore credit ratings. They should do their own analysis. But even the Fed uses ratings. And many private investors aren t equipped to do indepth credit research. For now, regulators should focus on promoting competition among raters.

What can Wall Street wring out of the bond insurers?

23 Jun 2008

Some underwriters of CDOs guaranteed by the battered monolines are negotiating to cancel the insurance. But how much should they demand to let insurers off the hook? Hard to say: the monoline guarantees have dropped in value, but the CDOs may be plunging too.

New corporate gusto for DIY buyouts looks risky

12 Jun 2008

Quite a few companies have piled on LBOlike amounts of debt since the credit crunch started, including Mars, United Rentals, Time Warner Cable and, soon, InBev. That s great for banks, but too much leverage may weigh down even strong borrowers.

United Rentals recap looks too risky

10 Jun 2008

Buyout shop Cerberus paid $100m to slip out of a $7bn plan to take the equipment rental firm private. Now it wants to lever up, buying back a third of its stock at a 20%odd premium. That's a small return for loading a cyclical company with debt when the economy is sagging.

SEC’s ratings reform could do more harm than good

10 Jun 2008

Adding a suffix to ratings designating that bonds are structured securities won t improve anything, and may even undermine the market. A different set of ratings for assetbacked paper would be better. But the best move would be to make the ratings process much more transparent.

TPG’s Alltel deals highlight loan market opacity

6 Jun 2008

The buyout firm bought some Alltel loans just before it was approached about selling the cell phone company. As part of Verizon's $27bn purchase, TPG may be making a profit on the loans. TPG seems to have had checks in place. But it s a reminder of the conflict potential.

Credit rating reform may reinforce oligopoly

5 Jun 2008

US regulators have been agitating for more competition in the credit rating game. But the deal the New York attorney general just hammered out with Moody s, Standard & Poor s and Fitch may actually reinforce their market dominance.

Exchanges aren’t the fix for CDS risk

13 May 2008

Citadel boss Ken Griffin may think they are. Yet credit derivatives are more like bonds than stocks, so they d be difficult to trade on exchanges. But Griffin is right to suggest that a clearing house for trades could defuse some of Wall Street s worrisome counterparty risk.

Buyout shops’ purchase of portfolio company debt is a crapshoot

13 May 2008

Apollo is buying a bankrupt portfolio company s debt. It may think it can recoup its losses if the bonds get swapped for stock. But bankruptcy is fraught with uncertainty. And the company will have to rocket later for the strategy to pay off. Investors should ask tough questions.

Ferrovial forced to dig deeper for BAA refinancing

9 May 2008

The Spanish construction group and its coinvestors will have to fork out another £400m of equity to support a mammoth £10bn refinancing of BAA debt. Even this may not be enough to win over some hedge funds. But the good news is that the refinancing might now actually get done.

Bernanke’s new gambit may ease consumer finance woes

2 May 2008

The Fed chief is still having a hard time getting banks to lend. His decision to accept assetbacked securities in exchange for treasury bonds could help. It will allow banks to squeeze welcome cash out of their big and increasingly wobbly credit card and car loan portfolios.

Mortgage originators should bear risk of default

29 Apr 2008

Standard and Poor's new recovery estimates imply a 40% payout on subprime mortgages. An origination system that produced a huge price bubble and such extreme default rates is broken. It won't be fixed until originators retain some responsibility for credit risk.

New spotlight may threaten muni bond prices

29 Apr 2008

A new index on municipal debt default swaps might add some transparency to the $2.6 trillion market, but it could also pressure prices. If shortsellers push down the index, those who use it to value their muni bond holdings will suffer.

Loan market edges from frying pan into fire

28 Apr 2008

April has been the best month for loans since the credit crunch started. Banks sold tens of billions of dollars worth as demand from distressed buyers pushed prices up. But rising defaults could pummel the market in the coming months, keeping it closed to desperate borrowers.

Leveraged loan sales highlight banks’ predicament

24 Apr 2008

Deutsche is unloading some $5bn of loans by lending to the buyers at a belowmarket interest rate. TDC is taking advantage of low debt prices by buying its own loans at a discount instead of paying them down at par. Lenders are paying now for their earlier credit exuberance.

Banks’ preferred issues are no boon for buyers

23 Apr 2008

Capitalstrapped banks have both regulatory and financial reasons to issue preferred stock. But investors should think twice before clamouring to buy an instrument that bundles some of the worst aspects of bonds and stock with few of their advantages.

Auction-rate mess threatens private bank cash cow

18 Apr 2008

A big advantage of private banking is its stickiness. Banks like UBS, JPMorgan and Merrill snare ultrarich clients in a web of trust, brokerage and estateplanning services. But the blowup in the $330bn auctionrate market has the carriage trade reaching for its buggy whips.

Derivatives’ daisy chain is $455 trillion threat

16 Apr 2008

The ongoing breakneck growth in the derivatives markets, especially those involving credit, used to be cheered as a sign of bankers innovative acumen. But since the credit crisis exposed Wall Street s fragility, it s starting to look like an ominous development.

Prodesse capital-raising hints at credit appetite

11 Apr 2008

Funds investing in US mortgages have had a torrid time during the credit crunch. But Londonlisted Prodesse has finally got away a £10m capitalraising postponed from last year. That could hint at returning confidence at least to the higher quality end of the credit markets.

WaMu runs into Goldman’s Chinese walls

11 Apr 2008

The Wall Street powerhouse helped WaMu place $7bn of new stock on Tuesday. On Friday, its equity analysts recommended shorting the troubled US thrift's shares. That punchy call isn t as contradictory as it sounds but it does suggest Goldman s internal barriers are working.