Bonds

US credit card debt might be next big problem

7 Sep 2007

Americans owe $900bn on plastic, a subprimesized debt load. With house prices no longer rising, they ll have trouble paying it back. Losses could be large for loans without collateral. But a meltdown might have a good effect: rethinking this highrate highloss business.

The wonky world of credit ratings needs a shake-up

7 Sep 2007

Credit ratings are sanctified by US laws and international bank capital rules. So investors rely on ratings, often more than they should. Rating agencies probably take more flak than they deserve. Breakingviews offers a few wacky ideas to shield them from blame.

Bondholders still fear LBO risk

4 Sep 2007

The stalled leveraged buyout market hasn t stymied demand for poison put protection on highgrade bonds. In fact, it seems to be growing. And it might not just be a delay in investors reaction to the slump. Some borrowers will be punished if they pile on debt without an LBO.

How far will run on non-banks spread?

3 Sep 2007

As yet, the credit squeeze is just a headache for banks. But a loss of confidence is creating real losses in nonbank finance. The banks' headache could get larger, since they have $500bn of deals to place. But the great danger is that fear hits the financial centre.

Lehman makes subprime exit look easy

22 Aug 2007

That's because the Wall Street firm got into the mortgage business cheaply and early. So it s not costing too much to throw in the towel. But others like Merrill Lynch and Cerberus shelled out a fair whack for their lending platforms. Scaling back would be much more painful.

LBO underwriters should bite the bullet

21 Aug 2007

Banks that are on the hook to provide $330bn of debt for pending leveraged buyouts don t want to sell it at firesale prices. But while taking a quick hit to move the debt off their books would slash bonuses, it might cauterise a potentially greater wound.

KKR Financial smart to launch rights offering

20 Aug 2007

It s often a sign of distress. But this one, along with a private placement, leaves the LBO firm s credit investing unit well protected. KKR Financial now has enough cash to cover any margin calls and to snap up distressed assets.

Nestle’s downgrade could mark end of credit trend

16 Aug 2007

The Swiss food company has lost its AAA rating leaving only six European and US nonfinancial groups sporting the top credit badge. The number of AAA companies has shrunk by 90% over 25 years. Yet credit market indigestion suggests the pendulum may soon swing back.

Credit spectre haunts bond insurers

16 Aug 2007

The market has pummelled stocks of firms like MBIA and Ambac on fears of big losses on the CDOs they have insured. That s possible, although they ve weathered credit storms before. More troubling may be what the crunch means for their access to capital.

Where are the subprime vultures?

3 Aug 2007

Still circling, evidently. Rapid price declines haven t attracted the same carrioneaters that pounce on troubled corporate bonds. A few, like Marathon and Prudential, are dipping a beak in. But with the bottom nowhere in sight, most remain hugging the sidelines.

Main LBO lenders face double whammy

25 Jul 2007

Wall Street is turning the screws on CLOs, the biggest lenders to buyouts. It wants more collateral from hedge funds that invest in them. And it s said to be restricting CLO managers ability to make loans in the first place. That could really crimp buyout financing.

Accounting-driven convertibles may lose lustre

23 Jul 2007

About $90bn worth of convertibles that settle in cash, rather than stock, have been issued over the past several years. They re designed to flatter issuers earnings per share. But US accounting rulesetters may soon pull the plug on the market.

Moody’s CMBS call puts it in a quandary

19 Jul 2007

It s putting principle before profit by tightening its commercial mortgage bond rating standards. That s smart for now. But if the subprime fiasco doesn t spread to CMBS, investors are unlikely to follow its lead. Then Moody s might have to eat its own words

S&P’s $5bn subprime blunder bolsters critics

12 Jul 2007

Dealing with criticism that it s late in querying ratings on last year s crop of subprime bonds is one thing. S&P can even muster a defence. But botching how many bonds it might downgrade is an embarrassing error. Worse, it hands ratings agency detractors more firepower.

This time could be different in credit market

25 Jun 2007

Neither the GM downgrade nor the Amaranth failure durably widened spreads. But US mortgage problems might mark the end of easy credit. Mortgage losses could exceed $100bn. With bond yields rising and central banks unlikely to cut, the risk of a lender retreat is high.

Rising bond yields could hit equities

19 Jun 2007

As yet, stock markets have shrugged off the halfpercentage point increase in yields. But the complacency may not last. A rising cost of capital means a falling value of equities. And the threat of higher inflation would make investors more wary about shares.

Bear’s woes show subprime saga has further to run

18 Jun 2007

The relative quiet of late created a false sense of security. The investment bank s mortgage hedge fund troubles put an end to that. But the subprime stumble was never a onequarter affair. The nature of the mortgage market means pockets of pain will emerge for months.

Loan market quirk may delay LBO reckoning

14 Jun 2007

The surge in yields may look bad for buyout shops reliant on easy credit from collateralised loan obligations to fund their acquisitions. But CLOs need to make loans to back the bonds they ve already issued. Even if rates skyrocket, this could allow LBO shops one last binge.

Markets face up to grimmer reality

8 Jun 2007

Thursday was a very bad day for bonds and stocks. Investors are finally catching on that inflation is not under control. Rates should keep rising, and shares could drop. Falling confidence and receding liquidity also increase the risk of a financial crisis.

Tata’s $2500 car threatens carbon targets

5 Jun 2007

The price of the first model, coming in 2008, is set to be 40% lower than its nearest rival. It s good news for emerging market consumers. But if the vehicle catches on, the production of carbonspewing cars will accelerate. Development doesn t fit will with emission controls.