Bonds

ABS vulture funds are ravenous – for now

29 Jul 2008

Dozens of firms have raised perhaps $100bn between them to buy distressed paper. But not all will be gifted the funding leverage Lone Star and Blackrock got from Merrill and UBS. That makes soaking up $1tr or more of problem assets harder. Potential sellers shouldn t wait around.

Paulson unveils another damp squib

28 Jul 2008

The US Treasury secretary is right that covered bonds can be a good way to fund mortgages. But their use didn t prevent property busts in Spain and the UK. And pushing for them in the middle of a housing bust won t do much, if anything, to kickstart the market in the US.

CDS marketplace is quietly growing up

21 Jul 2008

Bear Stearns role in the credit default swap market may have forced the Fed to rescue it. Still, the $62 trillion CDS market has survived the credit crunch and may have eased it in some ways. There are hurdles ahead, but the market increasingly looks to have staying power.

Agency debt trades on Panglossian assumptions

16 Jul 2008

The proposed bailout of mortgage giants Fannie and Freddie has given a big boost to their debt. Spreads are now back in line with their historic levels. Yet terms of the bailout are unknown. With so much uncertainty, larger spreads seem warranted.

Bureaucrats should stay out of CDO mire

14 Jul 2008

US legislators want to bar rating firms from slapping tripleAs on structured finance deals not first blessed by the SEC. But that's not regulators' expertise. Instead, they should eliminate perverse incentives by forcing banks to hold more capital against newfangled deals.

Fannie-Freddie containment is crucial

11 Jul 2008

If US policy wonks handle the crisis poorly, the mortgage giants woes could spread throughout the economy with dire consequences for banks, consumers and the government itself. Decisive action is called for, but the pain should be spread gradually.

Fannie, Freddie are US government’s monster SIVs

10 Jul 2008

Like the banks that ignored their contingent exposures to offbalancesheet vehicles during the boom years and lost billions when things soured, the US chose to pretend it wouldn't ever have to back the mortgage giants. Now it faces an unpleasant reality.

Moody’s mea culpa doesn’t restore confidence

1 Jul 2008

The rating firm s admission that employees glossed over CPDO rating errors is no surprise. It is acting to prevent a recurrence. But when ratings have broad implications or, as with CPDOs, when they are in the spotlight, executives are bound to feel pressure to finesse errors.

Carbon emissions projects ripe for ratings

25 Jun 2008

It s often cheaper to limit carbon emissions in poor countries than in rich ones. Yet many projects have disappointed, or worse, been scams. Independent watchdogs could provide a useful service to investors in these projects.

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.