Financial Times on Second Wave of SIV Liquidity Issues
Submitted by
CalculatedRisk on Tue, 12/18/2007 - 4:19pm (28 comments)
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Recent Recommendations
I've recently found out that the MTN is a YAT. Woo hoo.
oh freakin goody-
404 Page not found
Japan Cuts Growth Forecast as Law Change Causes Housing Slump
Japan Slashes Growth Forecast to 1.3% on Housing Woes (Update5) - Bloomberg.com
...housing starts to plummet to a four-decade low
"SIVs rely on cheap, short-term debt"
like 500M euros from the ECB for a few weeks ?
The Super-Sewer is dead...long live the Super-Sewer.
Now $181B in MTN looking to roll over to fund the SIeVe's, that's a hot potato.
Nobody's trusting these things on ST CP, who's gonna say...
Hmm...MTN from SIV's. I'd like to be a baghol...investor in that stuff. MM MM Good.
Cheers,
In the blue corner, we have Rowdy Roddy Market with his teammate Foreign Capital. And in the red corner we have The Super SIV with his teammate Terminator Auction Facility.
Let's get ready to rumble!
Oh, no, I can't believe this! Rowdy Roddy Market has fallen out of the ring, and his manager Madman King has decided to change sides and has clobbered Rowdy with a steel chair! Here comes Bad News Bernanke running around the ring flexing his muscles! Wait a second... King is helping Roddy up... Oh! He hits him again! Madness from the Madman!
The fans are going wild!
A bit OT but, now that the Fed is ready to regulate shady loan practices, why don't they clean up the latest scam: Reverse mortgages. Some of our most reputable financial houses are winding up to swindle millions of seniors with the same kind of slop they applied to the standard mortgage landscape.
Maybe the Fed can get ahead of the curve on this one.
"-- Homebuilding gross margin, before interest expense included in cost of
sales, was 15.1% for the 12 months of fiscal 2007 and 10.9% in the 2007
fourth quarter, compared with 23.1% for fiscal 2006 and 20.4% in the
fourth quarter of 2006."
"-- The Company's contract cancellation rate, excluding unconsolidated
joint ventures, for the fourth quarter of fiscal 2007 was 40%, compared
with the rate of 35% reported in both the fourth quarter of 2006 and
the third quarter of fiscal 2007."
"
"Our bank group provided a waiver under our $1.5 billion revolving credit facility as of October 31, 2007 for the covenants related to tangible net worth that were impacted by the non-cash FAS 109 tax charge," Mr. Sorsby said. "We have strong, longstanding relationships with many of the banks in our revolving credit facility, and we have initiated discussions with the bank group to further modify our covenants with respect to future periods. Based on our initial discussions, we believe that we will be able to successfully negotiate changes that are needed to the credit agreement to adjust for the change in tax treatment, as well as to provide us with adequate operating room as we manage through the remainder of the current housing slowdown. We expect to close the amendment in January," Mr. Sorsby said.
"We remain focused on strengthening our balance sheet," Mr. Sorsby continued. "We intend to use cash that we generate during fiscal 2008 to enhance our liquidity and further reduce our net outstanding debt. We anticipate increasing our bank borrowings modestly in the first half of the year, with reductions weighted towards the second half of the year, which follows our typical seasonal pattern. Also, as a result of restrictions in the indentures governing our senior and senior subordinated notes, we will not pay dividends on our Series A Preferred Stock during fiscal 2008," Mr. Sorsby concluded."
"-- Homebuilding gross margin, before interest expense included in cost of
sales, was 15.1% for the 12 months of fiscal 2007 and 10.9% in the 2007
fourth quarter, compared with 23.1% for fiscal 2006 and 20.4% in the
fourth quarter of 2006."
"-- The Company's contract cancellation rate, excluding unconsolidated
joint ventures, for the fourth quarter of fiscal 2007 was 40%, compared
with the rate of 35% reported in both the fourth quarter of 2006 and
the third quarter of fiscal 2007."
"
"Our bank group provided a waiver under our $1.5 billion revolving credit facility as of October 31, 2007 for the covenants related to tangible net worth that were impacted by the non-cash FAS 109 tax charge," Mr. Sorsby said. "We have strong, longstanding relationships with many of the banks in our revolving credit facility, and we have initiated discussions with the bank group to further modify our covenants with respect to future periods. Based on our i
hovnanian reports. wow!
Hovnanian Posts Loss as Rising Number of Buyers Cancel Orders - Bloomberg.com
"We intend to use cash that we generate during fiscal 2008 to enhance our liquidity and further reduce our net outstanding debt."
Good luck with that.
Re: Reverse mortgages
What are your objections to them? Just saying "I don't like them" is not enough for me.
I have a friend whose house has been saved for her by a RM, so I am partial towards them until convinced otherwise.
My deepest apologies, I honestly did not think the high-points had this much content-
Based on our initial discussions, we believe that we will be able to successfully negotiate changes that are needed to the credit agreement to adjust for the change in tax treatment, as well as to provide us with adequate operating room as we manage through the remainder of the current housing slowdown. We expect to close the amendment in January," Mr. Sorsby said.
"We remain focused on strengthening our balance sheet," Mr. Sorsby continued. "We intend to use cash that we generate during fiscal 2008 to enhance our liquidity and further reduce our net outstanding debt. We anticipate increasing our bank borrowings modestly in the first half of the year, with reductions weighted towards the second half of the year, which follows our typical seasonal pattern. Also, as a result of restrictions in the indentures governing our senior and senior subordinated notes, we will not pay dividends on our Series A Preferred Stock during fiscal 2008," Mr. Sorsby concluded.
MarketWatch.com
Krugman spreads CR love again:
http://krugman.blogs.nytimes.com/2007/12/18/predicting-the-house-price-fall/
I cannot get that Krugman link to work.
I swear it's deja vu all over again. It's @ Home 7 years later.
Surely you remember @ Home, the company that paid a gazillion dollars (in stock of course) to buy Blue Mountain Arts?
From Roubini:
If $500 billion of extra liquidity is not enough to reliquify money market what will take to do that? Possibly nothing as monetary policy cannot address credit and insolvency problems and the deep lack of trust of counterparties that are at the core of this credit - not just liquidity - crunch.
The Krugman piece is now on the sidebar its also on the sidebar:
predicting-the-house-price-fall.
How much of the SIVs hasn't been taken onto balance sheets?
FT - Painful adjustments ahead for banking system. Rarely have banks engaged in window dressing on the scale now being contemplated for December 31.
FT.com / Markets / Insight - Insight: Painful adjustments ahead for banking system
Hope I am not being repetitive, But I got the above noted headline from a small story in the Charlotte Observer.
Wachovia Division Lays off 20 Employees
Charlotte.com
May require a free sign up.
Not directly a SIV story, but very closely related as Wachovia is the big bundler of Commercial realestate and had predicted a seize up (my words) in the market for 2008.
Note that Wachiovia is actually understating its downsizing. I have noticed that the Charlotte Banks often don't even announce their layoffs and hiring freezes (I know because I know people who work for them).
As an aside, the Charlotte Observer e-mail business letter is worth signing up for if you are interested in banking. It is free, and they do report the smaller banking news that gets lost by the Manhattan based press.
SIVs have emerged as one of the biggest threats to capital markets that were rocked by record high defaults on U.S. mortgages made to borrowers with poor credit. Citigroup Inc., Bank of America Corp. and dozens of banks and brokers reported more than $66 billion of losses and writedowns from subprime mortgages. The average net asset value for SIVs has tumbled to 55 percent from 71 percent a month ago and 102 percent in June, according to Moody's.
The amount of outstanding commercial paper backed by assets owned by SIVs and other companies shrank to a seasonally adjusted $801.2 billion for the week ended Dec. 5 from $1.2 trillion in August, Federal Reserve data show.
The adjustment has to do with vaporized cash IMHO
I think that the ABCP's are maturing, and no one is willing to buy the paper. Thus the sponsoring bank picks up the balance needed to be borrowed. This in turn reduces the amount of money the sponsoring bank can lend to others and drives down their Tier 1 ratio. Citibank a case in point.....
This caught my eye, even if doesnt strike yours:
Standard Chartered Plc used the same process, known as vertical slicing, to slash its Whistlejacket Capital Ltd. SIV to $10.8 billion from $18.2 billion.
``This strategy leaves the capital note in a position to ride out the liquidity-tightened markets and wait to see if asset prices eventually rise,'' S&P said in its Dec. 7 report.
Yes, hmmm,
FT.com / UK - Banks and investors seek SIV exit routes
The "vertical slice" sales used by some allows cash-strapped SIVs to raise chunks of funding to repay their senior creditors without having to run cap-in-hand to the vultures who would pay only rock bottom prices for assets.
In such deals, junior investors swap their riskier capital notes at their impaired market value for an equivalent amount of the SIV's underlying assets, also at market values. They then also put up more money to buy a pro rata share of the entire SIV portfolio, which ensures that the proportion of junior debt to senior debt in the vehicle remains the same after the deal as before.
Yes,
London-15 November 2007: Fitch has said in a report published today that, during the second half of October 2007, the prices at which Structured Investment Vehicles (SIV) collateral was marked decreased slightly, with the largest decreases in the non-prime US RMBS, Monolines, CMBS, Student Loan and Investment Bank asset classes. As a result, the net asset value of capital of Fitch rated SIV fell slightly, but the rate of fall during October was much less than that observed in the previous two months.
The report entitled "Structured Investment Vehicles (SIVs) Rating Performance Update - Issue 3" discusses the most relevant asset and liability parameters for the Fitch-rated SIVs. It reports that the credit quality and composition of SIV portfolios has remained largely unchanged since the publication of the last report on 29 October 2007. SIVs continued to experience difficultly in issuing CP and they have increased the use of repo funding. The report provides greater insight into two sources of alternative funding that some SIVs have recently employed: "vertical slicing" and repo transactions.
Since the previous report issued on 29 October 2007, Fitch has downgraded all Axon Financial's notes (see announcement dated 9 November 2007). Fitch also put Sedna Finance's Second Priority Senior (SPS) Notes on Rating Watch Negative (see announcement dated 9 November 2007).
The report, is available on FitchResearch It is the third issue of a regular publication containing a summary of the key performance parameters for Fitch-rated Structured Investment Vehicles (SIVs). This report follows the publication of Fitch's special report, entitled "SIVs Rating Performance Update - Issue 2", dated 29 October 2007.
Yah, now we have to explain to the teachers in Florida why the horizontal slices in those pension funds are worth less and that they are still screwed? Oh well....
Bottom Line On SIV Vertical Slicing comes from Warren:
To the Shareholders of Berkshire Hathaway Inc.:
Our gain in net worth during 2005 was $5.6 billion
.... And thats where we are today: A record portion of the earnings that would go in their entirety to
owners if they all just stayed in their rocking chairs is now going to a swelling army of Helpers.
Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large
portions of the winnings when they are smart or lucky, and leave family members with all of the losses
and large fixed fees to boot when the Helpers are dumb or unlucky (or occasionally crooked).
A sufficient number of arrangements like this heads, the Helper takes much of the winnings;
tails, the Gotrocks lose and pay dearly for the privilege of doing so may make it more accurate to call the
family the Hadrocks. Today, in fact, the familys frictional costs of all sorts may well amount to 20% of
the earnings of American business. In other words, the burden of paying Helpers may cause American
equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to
no one
London Times - Mervyn King tells of 'this palpable sense of fear' holding back bank lending
Mervyn King tells of 'this palpable sense of fear' holding back bank lending - Times Online