I think I've read, that a lender missing SEC filings can be grounds for bond-holders sending loans back. It definitely triggers covenants on many bond issues. I have no idea if this will become an issue here.
I'm officially declaring that NEW has not delivered on its promise to deliver its financials by 3/1. I guess they still have 3 hours before its midnight on the east coast, but I think we would have seen it by now.
Duh...I guess I should have read the whole thing...here you go wawawa:
Form 12b-25 will explain the reasons for the Company not filing today with the Securities and Exchange Commission its Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Looks like NEW uses the same legal counsel as FMT:
New Century Financial Corporation to File Form 12b-25 With the SEC
New Century Financial Corporation (NEW : new century financial corp m com
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8:14pm 03/01/2007
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NEW15.85, +0.51, +3.3%) , a mortgage real estate investment trust (REIT), today announced that it expects to file a Form 12b-25 with the Securities and Exchange Commission (SEC) with respect to its Annual Report on Form 10-K for the fiscal year ended December 31, 2006. The Form 12b-25 will be filed with the SEC on March 2, 2007.
This is in MTG's 10K filed today. C-BASS has $2.4 billion in "securities" on its balance sheet. How can the loss be only $30 million?
Subprime Market: Significant dislocation occurred in the subprime mortgage market during February 2007. Spreads on non-investment grade and non-rated subprime mortgage securities, which are the bulk of C-BASSs mortgage securities portfolio, increased dramatically through February 23, 2007, when our Managements Discussion and Analysis was finalized. Unless spreads return to their level at the end of January 2007, C-BASS will experience expense from negative mark-to-market revaluations of these assets. See OverviewBusiness and General Environment Income from Joint VenturesC-BASSHedging gains and losses, net of mark-to-market and whole loan reserve changes. During February 2007 through February 23, C-BASS estimates this expense was approximately $30 million. C-BASS also believes it was profitable during the period January 1 through February 23, 2007. Prior to February 2007, we expected C-BASSs pre-tax income in 2007 to approximate its pre-tax income in 2006. Changes in spreads through February 23, 2007 have not led us to make any material revision to this expectation, although we now view there is more risk to the achievement of this forecast. We also believe C-BASSs results for the first quarter of 2007 will be materially below its results for the first quarter of 2006. As noted under Our income from joint ventures could be adversely affected by credit losses, insufficient liquidity or competition affecting those businessesC-BASS in Item 1A. of this Annual Report on Form 10-K, the substantial majority of C-BASSs on-balance sheet financing for its mortgage and securities portfolio is dependent on the value of the collateral that secures this debt. When spreads increase, additional cash (margin) must be provided to the lenders to offset the related decline in collateral value. C-BASS has maintained substantial cash resources against the risk of spreads increasing by amounts that are substantially greater than have been experienced in February 2007 through February 23, 2007. Hence, we do not believe the spread increases experienced in February 2007 through February 23, 2007 have materially impaired C-BASSs liquidity. C-BASS also maintains substantial liquidity to cover additional margin that may be required when C-BASSs interest rate risk hedging instruments decline in value as a result of short-term interest rate declines. Such declines in the value of hedging instruments are reflected in C-BASSs operating results as unrealized losses.
Results of Operations and Financial Conditio
Calvert, FICC dropped .28 to $4.64 today. Related to C-Bass disclosure? IMHO auditors will press for realistic assessment of C-Bass situation before 1st Quarter is released. It is possible they were heavily hedged by shorting the ABX or have large interst rate hedge profits to offset M to M mortgage security losses.
Or management may be doing evaluations with rose coloured glasses. Or ???
I think I've read, that bond-holders sending loans back can be grounds for the lender filing bankruptcy.
But ac, those bonds were issued by SPVs that are "bankruptcy remote." I read that in the newspaper, so it must be true. The way it works is, these SPV trusts all go bankrupt, but the actual company off of whose balance sheet the financing went still have their Biohazard Suits on, so the contagion does not spread.
I must say there's a lot of people on this blog who engage in "old economy" thinking.
Calvert,
Second thoughts on C-Bass. IMHO if they did a good underwriting job and kept nearly all "good" whole loans, rather than residual interests and lower tranche securities, losses could be $30 million (1.3)%. However, I am still sceptical.
vicjim, I think my problem here is that I really don't understand how you mark an "unrated" security. Being, as I am, a denizen of the "rated security" world, as it were, where there is always an observable market price to mark to and the auditors don't argue about it because it came off Bloomberg. Where are we getting the MtM on the toxic waste?
Tanta, Good point. If I was the auditor,(like 30 years ago) I might (but shouldn't have) of ignored this difficult issue at yearend. However, due to the heavy publicity about the subprime/MBS problems an auditor would suggest management look for more comfort on values for the 1stQ results.
For toxic waste this might involve, for a sample of securities, bids or sales of other toxic waste and a comparison of the different characteristics of my toxic waste and the last stuff that sold. Not a precise process but ensures the valuations are in the ballpark.
However, both the auditors and management could rely on the expanded disclosure (in 2005) to cover their asses and hope the problem (if any) will go away.
tanta - you have the (stated, at least) reason for bankruptcy remoteness backward. SPVs insulate the holder of the security from babkruptcy on the part of the issuer.
A creditor of the issuer can't pursue the assets backing the security because they are in the bankruptcy remote SPV.
For a lot of MBS at least, S&P sells the Levels model, which allows a computer to rate the security for you. So you never actually have to submit it to S&P. And auditors and in some cases regulators accept the rating that comes out of Levels. I haven't looked at Levels in a couple of years, but back then at least it didn't handle structured finance type stuff.
I can't speak to what the auditors do, but bank regulations generally says that unrated stuff gets treated pretty harshly for purposes like risk based capital.
Thanks, mort_fin. So what does happen if the bondholders invoke some covenant that puts the trust in bankruptcy? It all goes back on the issuer's balance sheet? If the issuer has to make good on the trust's liabilities, then how "off balance sheet" is this? I R confused.
PS: if this comment shows up three times, then my personal new term of abuse is "Haloscanned," as in "you'd better audit those financials carefully or Sarbox will Haloscan your ass."
well I just got haloscanned too. I know, highlight, ^C is your friend, but I'm still on my first coffee.
Anyway, bankruptcy remoteness works both ways, but the direction to which tanta refers is the same as the oldfashioned concept of 'selling.' Absent fraud, a bankruptcy on the part of the security doesn't come back to haunt the issuer, as the issuer has effectively sold the assets to a seperate entity. Of course, in the old days before SPVs when stuff was just sold, problems with the stuff sold didn't come back to haunt the seller, unless there was fraud, in which case they did, so it really is no different.
But it's hard to envision "bankruptcy" for an MBS, short of blatant operational fraud (I guess that doesn't sound so remote these days, does it?). The investor has agreed to receive cash flows if and when they happen. If there are no borrower payments, there are no cash flows. Not a bankruptcy situation, just a situation of fulfilling contractual terms that may leave the investors less than overjoyed.
At issue here, I think is how 2006 ended. How do you fairly and accurately record the Year End in the Income and Balance sheet. My sense is that for years, the past-due mortgages were treated on a statistical and maybe not precisely actual basis and that over time, this captures actuals. Now, in Q4 with30/60/90 days past due at alarmingly high levels, this is just not working. At what point do you write off 100% of the mortgage and book the loss?
Further, how do you treat the mortgage book and outline the credit worthiness?
Here is an entertainment suggestion: When you get home all warm and snugly, pour yourself a stiff one and go online and do some great reading, here is the thread:
MER Homepage>Investors>Financial Reports>Feb 26, 2006 10k>Note 7.
I think I've read, that a lender missing SEC filings can be grounds for bond-holders sending loans back. It definitely triggers covenants on many bond issues. I have no idea if this will become an issue here.
I think I've read, that a lender missing SEC filings can be grounds for bond-holders sending loans back.
I think I've read, that bond-holders sending loans back can be grounds for the lender filing bankruptcy.
I'm officially declaring that NEW has not delivered on its promise to deliver its financials by 3/1. I guess they still have 3 hours before its midnight on the east coast, but I think we would have seen it by now.
FMT spokesperson on Tuesday said Thursday, now they push it to Friday.
Maybe the FDIC is taking them over >:) (j/k, this is how nasty rumors start)
OK, what is Form 12b-25?
what does it mean?
"OK, what is Form 12b-25? what does it mean?"
I dunno but it doesn't sound too good....
Duh...I guess I should have read the whole thing...here you go wawawa:
Form 12b-25 will explain the reasons for the Company not filing today with the Securities and Exchange Commission its Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
close of business in CA is 8:00 pm EST, I bet they file after market closes.
stealth filing.
Looks like NEW uses the same legal counsel as FMT:
New Century Financial Corporation to File Form 12b-25 With the SEC
New Century Financial Corporation (NEW : new century financial corp m com
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Last: 15.85+0.51+3.32%
8:14pm 03/01/2007
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NEW15.85, +0.51, +3.3%) , a mortgage real estate investment trust (REIT), today announced that it expects to file a Form 12b-25 with the Securities and Exchange Commission (SEC) with respect to its Annual Report on Form 10-K for the fiscal year ended December 31, 2006. The Form 12b-25 will be filed with the SEC on March 2, 2007.
Bob_in_MA, you are totally correct, but small delay is allowed. Maybe few weeks.
This is in MTG's 10K filed today. C-BASS has $2.4 billion in "securities" on its balance sheet. How can the loss be only $30 million?
Subprime Market: Significant dislocation occurred in the subprime mortgage market during February 2007. Spreads on non-investment grade and non-rated subprime mortgage securities, which are the bulk of C-BASSs mortgage securities portfolio, increased dramatically through February 23, 2007, when our Managements Discussion and Analysis was finalized. Unless spreads return to their level at the end of January 2007, C-BASS will experience expense from negative mark-to-market revaluations of these assets. See OverviewBusiness and General Environment Income from Joint VenturesC-BASSHedging gains and losses, net of mark-to-market and whole loan reserve changes. During February 2007 through February 23, C-BASS estimates this expense was approximately $30 million. C-BASS also believes it was profitable during the period January 1 through February 23, 2007. Prior to February 2007, we expected C-BASSs pre-tax income in 2007 to approximate its pre-tax income in 2006. Changes in spreads through February 23, 2007 have not led us to make any material revision to this expectation, although we now view there is more risk to the achievement of this forecast. We also believe C-BASSs results for the first quarter of 2007 will be materially below its results for the first quarter of 2006. As noted under Our income from joint ventures could be adversely affected by credit losses, insufficient liquidity or competition affecting those businessesC-BASS in Item 1A. of this Annual Report on Form 10-K, the substantial majority of C-BASSs on-balance sheet financing for its mortgage and securities portfolio is dependent on the value of the collateral that secures this debt. When spreads increase, additional cash (margin) must be provided to the lenders to offset the related decline in collateral value. C-BASS has maintained substantial cash resources against the risk of spreads increasing by amounts that are substantially greater than have been experienced in February 2007 through February 23, 2007. Hence, we do not believe the spread increases experienced in February 2007 through February 23, 2007 have materially impaired C-BASSs liquidity. C-BASS also maintains substantial liquidity to cover additional margin that may be required when C-BASSs interest rate risk hedging instruments decline in value as a result of short-term interest rate declines. Such declines in the value of hedging instruments are reflected in C-BASSs operating results as unrealized losses.
Results of Operations and Financial Conditio
Hope Fremont comes up with a very short reason. Something like: "Same as Fannie". Regards....
Calvert,
"dramatically" is not a word that lawyers use lightly in SEC documents. That says a lot about spreads.
Calvert, FICC dropped .28 to $4.64 today. Related to C-Bass disclosure? IMHO auditors will press for realistic assessment of C-Bass situation before 1st Quarter is released. It is possible they were heavily hedged by shorting the ABX or have large interst rate hedge profits to offset M to M mortgage security losses.
Or management may be doing evaluations with rose coloured glasses. Or ???
Oh man,
Not the 12b-25. They might as well file the 11e-h2, cause that's where they're goin'.
Wow, this whole thing is getting synchronous. Investing is fun - when it's at the margins.
FTSE 100 \t6116.0 \tdown \t-55.50
Dax \t 6640.2 \tdown \t-75.20
Cac 40 \t 5458.4 \tdown \t-57.92
Dow Jones \t12234.3 down \t-34.29
Nasdaq \t 2404.2 \tdown \t-11.94
S&P 500 \t1403.2 \tdown \t-3.65
BBC Global 30 \t5622.5 \tdown \t-5.42
Forget - the popcorn. Our economy needs a bucket and a cleaning woman.
I think I've read, that bond-holders sending loans back can be grounds for the lender filing bankruptcy.
But ac, those bonds were issued by SPVs that are "bankruptcy remote." I read that in the newspaper, so it must be true. The way it works is, these SPV trusts all go bankrupt, but the actual company off of whose balance sheet the financing went still have their Biohazard Suits on, so the contagion does not spread.
I must say there's a lot of people on this blog who engage in "old economy" thinking.
Calvert,
Second thoughts on C-Bass. IMHO if they did a good underwriting job and kept nearly all "good" whole loans, rather than residual interests and lower tranche securities, losses could be $30 million (1.3)%. However, I am still sceptical.
vicjim, I think my problem here is that I really don't understand how you mark an "unrated" security. Being, as I am, a denizen of the "rated security" world, as it were, where there is always an observable market price to mark to and the auditors don't argue about it because it came off Bloomberg. Where are we getting the MtM on the toxic waste?
This is WMC rate programs:
https://www.wmcmortgage.com/cms/programs.asp
March special (on the right of page) is identical to Februray special. (all rates, all FICO)
Tanta, Good point. If I was the auditor,(like 30 years ago) I might (but shouldn't have) of ignored this difficult issue at yearend. However, due to the heavy publicity about the subprime/MBS problems an auditor would suggest management look for more comfort on values for the 1stQ results.
For toxic waste this might involve, for a sample of securities, bids or sales of other toxic waste and a comparison of the different characteristics of my toxic waste and the last stuff that sold. Not a precise process but ensures the valuations are in the ballpark.
However, both the auditors and management could rely on the expanded disclosure (in 2005) to cover their asses and hope the problem (if any) will go away.
tanta - you have the (stated, at least) reason for bankruptcy remoteness backward. SPVs insulate the holder of the security from babkruptcy on the part of the issuer.
A creditor of the issuer can't pursue the assets backing the security because they are in the bankruptcy remote SPV.
For a lot of MBS at least, S&P sells the Levels model, which allows a computer to rate the security for you. So you never actually have to submit it to S&P. And auditors and in some cases regulators accept the rating that comes out of Levels. I haven't looked at Levels in a couple of years, but back then at least it didn't handle structured finance type stuff.
I can't speak to what the auditors do, but bank regulations generally says that unrated stuff gets treated pretty harshly for purposes like risk based capital.
Thanks, mort_fin. So what does happen if the bondholders invoke some covenant that puts the trust in bankruptcy? It all goes back on the issuer's balance sheet? If the issuer has to make good on the trust's liabilities, then how "off balance sheet" is this? I R confused.
PS: if this comment shows up three times, then my personal new term of abuse is "Haloscanned," as in "you'd better audit those financials carefully or Sarbox will Haloscan your ass."
well I just got haloscanned too. I know, highlight, ^C is your friend, but I'm still on my first coffee.
Anyway, bankruptcy remoteness works both ways, but the direction to which tanta refers is the same as the oldfashioned concept of 'selling.' Absent fraud, a bankruptcy on the part of the security doesn't come back to haunt the issuer, as the issuer has effectively sold the assets to a seperate entity. Of course, in the old days before SPVs when stuff was just sold, problems with the stuff sold didn't come back to haunt the seller, unless there was fraud, in which case they did, so it really is no different.
But it's hard to envision "bankruptcy" for an MBS, short of blatant operational fraud (I guess that doesn't sound so remote these days, does it?). The investor has agreed to receive cash flows if and when they happen. If there are no borrower payments, there are no cash flows. Not a bankruptcy situation, just a situation of fulfilling contractual terms that may leave the investors less than overjoyed.
06 is dead, 07s alive;
The auditors are very busy
Putting markets in a tizzy
With their 12b-25.
We can take it if you bake it
In the price of homes and loans.
If were hearing moans and groans
Were thinking that you must have faked it.
Oh, the carnage! Oh, the marking
To the market of the tranches!
Theres a dog up on its haunches
At the barn door it is barking.
Poets come and poets giggle
Witty tongues are all a-wagging.
CEOs, though, now are gagging
On the forward-looking wiggle.
it took so long to bake it
and I'll never have that recipe agai
Ah, the "MacArthur Mark" theory of pricing securities . . .
At issue here, I think is how 2006 ended. How do you fairly and accurately record the Year End in the Income and Balance sheet. My sense is that for years, the past-due mortgages were treated on a statistical and maybe not precisely actual basis and that over time, this captures actuals. Now, in Q4 with30/60/90 days past due at alarmingly high levels, this is just not working. At what point do you write off 100% of the mortgage and book the loss?
Further, how do you treat the mortgage book and outline the credit worthiness?
Here is an entertainment suggestion: When you get home all warm and snugly, pour yourself a stiff one and go online and do some great reading, here is the thread:
MER Homepage>Investors>Financial Reports>Feb 26, 2006 10k>Note 7.