Bonds

Wall Street firms pick different exits from LBO loans

10 Apr 2008

Citi is financing a sale of $12bn of its loans, sparing it the likeliest losses but not all the worstcase exposure. Lehman, by contrast, is hanging onto first loss risk on $3bn of its portfolio but sharply cutting its maximum loss. Goldman is just selling. Why the differences?

Lehman borrows tarnished structure to offload hung loans

4 Apr 2008

The firm s Freedom CLO uses the same technology that ignited the buyout debt boom. But now, it s being used to clean up the rubble. It may limit Lehman s losses and, if defaults in the portfolio are modest, it could give the firm a windfall.

US economic pig now Fed and watered

18 Mar 2008

Bernanke is slopping nearly $450bn of new liquidity into the market's trough and is watering it with a 0.75% rate cut. But the US economic pig needs a diet and exercise, not more truffles. Until real interest rates are positive, the economy will remain in poor shape.

Did the Fed put a safety net under bank default swaps?

17 Mar 2008

JPMorgan s governmentassisted purchase of Bear Stearns slashed the prices of default swap insurance on Bear s debt. Yet the cost of insuring against other bank defaults continues to rise. Investors should sell protection if they think the Fed really won t let banks to go bust.

Buy credit, sell equities

13 Mar 2008

Even after Tuesday s big rally, credit spreads are priced for Armageddon. Stocks are well down from their 2007 highs, but don t discount anything worse than a mild slowdown. That looks optimistic. The technical problems in the credit market have a created a big opportunity.

Should the US government insure muni bonds?

12 Mar 2008

It might bring in some welcome revenues. But Rep. Barney Frank s proposal that the federal government get into the muni bond insurance business doesn t solve any problems. Better to eliminate the dualrating system for munis. That would remove the need for as much insurance.

Carlyle fund’s woes highlight uncharacteristic strategy

11 Mar 2008

The firm s Carlyle Capital affiliate is on the brink after making a relatively simple, if highly leveraged, bet on agency securities. That seems almost naive compared to the diverse and sophisticated investing Carlyle is known for. And it may not be what investors expected.

Multilaterals will find life easier when liquidity tightens

11 Mar 2008

The Asian Development Bank is looking at relaxing its social and environmental standards bilateral aid donors like China provide money with fewer conditions. It should wait. Tightening world liquidity will leave ADB and other multilateral banks with much less competition.

US mortgage bailout options

11 Mar 2008

Pressure is growing in Washington to aid underwater homeowners. Robert Cyran handicaps the various government bailout plans.

Is commercial real estate the next subprime?

19 Feb 2008

Fears are mounting that it will be. But the market is more established than its homeloan cousin, with better data, players with skin in the game, and less frenzied demand from CDOs. That might not be enough to stave off writedowns and defaults. But they shouldn t be as onerous.

Falling Libor means pain for banks, reprieve for buyout firms

19 Feb 2008

The benchmark interbank rate has plummeted nearly 275 basis points in five months. That s given banks with stuck LBO loans another headache. But stretched privatelyowned companies benefit from lower debt servicing costs. Buyout firms won t be so lucky next time.

Wall Street’s next clash with Spitzer has far higher stakes

15 Feb 2008

The New York governor backs a plan to split monolines muni and structured finance businesses. FGIC wants to do so. But banks and investors holding FGICinsured debt could lose far more than they paid to settle their clashes with Spitzer in the past.

Auction-rate securities’ big innovation: everyone loses

13 Feb 2008

When most investments blow up, it s the buyer that suffers. Auction rate notes are an unwelcome innovation. They hurt issuers too. After performing pretty well for two decades, Wall Street s liquidity vacuum has exposed this $330bn market s Achilles' heel.

Buffett offers monolines an $800bn poisoned chalice

12 Feb 2008

The Sage of Omaha offered to reinsure twothirds of their muni exposures. Sound like a bailout? Well, no it would probably put them out of business. He d get all their safe bets, leaving them with toxic structured finance risk. His own new monoline would be the big winner.

Are battered LBO loans a buy?

11 Feb 2008

Highrisk loans are trading at 86 cents on the dollar. Sure, lenders are worried about defaults. But part of the discount is driven by market technicals mainly liquidity. And many recent LBOs don t have to refinance their debt for years. Longerterm, they may be attractive.

MBIA’s $1bn issue shows monoline rescue is unnecessary

8 Feb 2008

The bond insurer's stock issue takes the capital it has raised in recent months to $2.5bn. That shows some monolines can access capital without regulators help. Sure, a lot of challenges remain for the industry. But MBIA s fundraisings undermine the rationale for a bailout.

Happy birthday, credit crunch

7 Feb 2008

It s the first anniversary of HSBC and New Century revealing mounting problems with subprime loans. Once thought containable, the US s mortgage woes were instead the catalyst for bursting the broader leveraged credit bubble. So far, only more confusion seems to lie ahead.

S&P tries to rebuild confidence – and profits

7 Feb 2008

The rating agency s latest governance proposals are helpful. But the public service spin invites scepticism. It s largely about money: structured finance revenues at rival Moody s tumbled 40% last quarter. The problem for investors is that raters still aren t really accountable.

$50tr credit default swap market awaits crash-testing

5 Feb 2008

The overthecounter market for credit protection has weathered a few squalls. Banks trading infrastructure has improved, too. But exponential growth has been accompanied by a scarcity of company defaults. If a real bankruptcy storm builds, there s still room for worry.

Moody’s considers new bolts for stable doors

5 Feb 2008

The rating agency is asking whether it should differentiate structured finance ratings from its more traditional assessments. It s an idea whose time should have come years ago. Still, better late than never and there are a few options beyond the five ideas offered by Moody s.