I'll bet it has something to do with the warning that interest payments on these notes must be approved by insurance regulators, specifically NY State.
Do we know for sure that the underwriters managed to place all these notes? Or could they still be holding the bag?
In some cases, ``dramatically low'' prices have been quoted, Moody's said, citing one SIV that received bids averaging 7 percent of face value for a collateralized debt obligation with the highest Aaa credit ratings.
Pelosi just announced bi-partisan ship for an economic stimulus package,......better load up on ink for your printers and fax machines,,,there is about to be a run on ink...
The 16 percent translates to $1.6 million on $10 million of debt and implies a 27 percent chance that MBIA will default in the next year, according to a JPMorgan valuation model. For five- year insurance, holders would pay $900,000 a year
Nemo - This is what I was asking about earlier this am in another comments section...There is currently discussions of whether liquidation will occur 6B x 16? (Margin) it is a lot of stuff to hit the fan in short order.
" Victoria Finance Ltd., the $6.8 billion Cayman Islands-based SIV run by Ceres"
Yikes, ABK is certainly looking ill. Pity the poor guy who recently commented here that he "bet his life savings on ABK". Bargain hunters beware (in an economy that's about to create banrkupt companies instead of easy credit)...
Highlights:
* MBIA's numbers are presented net of reinsurance. About half of the reinsurance comes from Channel Re (rated AAA with $300 million capital)
* MBIA helped set up Channel Re in 2004 with a 17.4% ownership stake.
* MBIA shifted their riskiest exposures to Channel Re.
* MBIA needs to raise in excess of $10 billion of capital, depending on circumstances.
* If MBIA does not cut the dividend and cannot access cash held at its investment management subsidiary, they run out of cash at the end of this June. If they are able to access the cash, they run out of money by the end of this year.
Misean, I think you remembered HSBC setting up a CDO of MBIA bonds. HSBC guarantees the CDO, making it a bailout of MBIA by HSBC. I saw some interesting speculation about HSBC is throwing money it doesn't have down a very obvious hole but don't have time to track down links of that.
NEW YORK, Jan 16 (Reuters) - Standard & Poor's on Wednesday cut its credit ratings on Orion Finance, a structured investment vehicle, after the fund defaulted on its obligations to pay off maturing commercial paper.
S&P lowered the fund's issuer credit rating to "D," for default, from "AAA," the top investment-grade rating. Orion's commercial paper and medium-term note ratings were also cut to "default."
Pity the poor guy who recently commented here that he "bet his life savings on ABK".
That poor bastard.
OT
Goldman Sachs raised Wednesday its gold price forecasts to reflect expectations of a U.S. recession in 2008, which should lead to a lower U.S. dollar.
Analyst Oscar Cabrera raised his 2008 average gold price forecast to $910 an ounce from $800, his 2009 estimate to $870 an ounce from $852 and his 2010 projection to $940 an ounce from $907.
Has anyone laid out all the consequences of a failure of one of the monolines?
ZackAttack,
Over the short term, we're probably not looking at a business failure of either the insurance company or holding company. We're looking at a possible ratings downgrade. This would compel investors owning bonds to sell those no longer rated AAA. They would drop quickly in price, maybe by about 10%. Institutions would be less willing to allow bonds to be used as collateral for loans and margin accounts.
The flow of new premium into monolines would dry up and eventually they would be forced into receivership by state insurance commissions.
Quick scan looks like 3 new lows on ABX (and deterioration generally), and 13 new highs on CMBX (and deterioration generally), with further widening of LCDX.
Standard & Poor's on Wednesday cut its credit ratings on Orion Finance, a structured investment vehicle, after the fund defaulted on its obligations to pay off maturing commercial paper.
S&P lowered the fund's issuer credit rating to "D," for default, from "AAA," the top investment-grade rating.
Well, I can stop wondering where my daily belly laugh is going to come from today.
The S&P rating scale has more steps than the escalators at the Union Station Metro, and when they finally get around to a "reevaluation" they drop it from a AAA to a D?! That's just awesomely shameless.
Apparently the "fog-the-mirror" standard that doesn't apply to jumbo stated-income loans any more is still alive and well for credit analysts.
That was it. Nice, a AAA rated companies bonds needed to be CDO'd and insured to get a AAA rating on the surplus notes. My oh my, talk about grade inflation.
Coodanode's cousin, Whodathunk has got to be wondering who bought these Pieces of... ummm... Paper.
Let me get this straight. 14% at par last month. 89.5 and counting today. What is that at honest AAA return equivalents?
I don't care. This isn't some sliding spectrum. 14% for a few months at best isn't on the same curve as a real investment. This is gambling. I don't have a problem with gambling as long as the government isn't involved but I do have a problem with abusing the credit market with longshots that belong in alleys.
I thought I remembered reading that HSBC CDO'ed the bonds too, but I talked to a guy at Morgan Stanley this morning who said it all got put away to retail. This is retail in the institutional sense, not ma and pa.
"Pelosi just announced bi-partisan ship for an economic stimulus package,......better load up on ink for your printers and fax machines,,,there is about to be a run on ink...
borkafatty | 01.16.08 - 3:48 pm | # __________
S&P Will Review Bond Insurers With New Assumptions (Update1)
By Christine Richard
Jan. 16 (Bloomberg) -- Standard & Poor's will re-examine the AAA credit ratings of bond insurers including MBIA Inc. and Ambac Financial Group Inc. after deciding that the housing slump will cause bigger losses from subprime mortgages than anticipated.
The S&P rating scale has more steps than the escalators at the Union Station Metro, and when they finally get around to a "reevaluation" they drop it from a AAA to a D?! That's just awesomely shameless.
PartnerRe said the most recent announcement made by MBIA that it will record a fourth-quarter mark-to-market charge of $3.3 billion, including about $200 million in credit impairments, will lead to mark-to-market write-downs at ChannelRe in excess of its shareholders' equity.
word on the street was that the 2 largest shareholders in MBIA were asked (read:TOLD) to buy $200 million EACH of the wildly undersubscribed 14% surplus note. It was therefore (in distribution terms) a PIG out of the gate. Take it from a HY veteran, it still looks like its trying to find a home.....despite the fact that the fundamentals could make it a zero at any time.....
Before people get too excited, don't forget a couple of facts. First, as Ackman never fails to point out, the holding company isn't the same as the regulated monoline insurance subs. The holding company has been rated AA, not AAA. The surplus notes are essentially capital, not a bond. They were not AAA rated but got, I assume by default, a AA rating I assume based on the rating of the holding company. Anyway, the surplus notes should pay a decent rate of return since they aren't convertible and there is no upside, yet they are essentially equity.
Having said that, I am still short mbia and abk. That is, I have a modest number of puts.
The insurance subs are not normal financials, they are based on stone age new deal regulation and are inherently conservative. Not so conservative that they couldn't be blown up by structured finance, but not like a bank, anyway. You can't have a run on an insurance company, since the premiums are paid in advance.
Anyway, I don't particularly like Ackman and don't believe the subs are likely to run out of cash soon. It is too much of a black box. However, he may be right.
The market cap of both mbi and abk are in the $1.5b range, so the holding company equity is mostly gone. I don't think there are any shares to short.
word on the street was that the 2 largest shareholders in MBIA were asked (read:TOLD) to buy $200 million EACH of the wildly undersubscribed 14% surplus note. It was therefore (in distribution terms) a PIG out of the gate. Take it from a HY veteran, it still looks like its trying to find a home.....despite the fact that the fundamentals could make it a zero at any time....
Told to either pony up or we file BK and you get nothing and will like it?
As far as the guy that had 25% of his holdings in abk, he seems like a young guy and I took a look at his blog. I was tempted to say something, but he looked like he had done some analysis, so I didn't see any point in arguing the merits.
If he has a few thousand in it, it could be a great investment lesson -- as patronizing as it sounds. He will be in good company with Marty Whitman. Marty seems to think the residue of mbi after an insolvency is still enough to make it a reasonable investment.
I used to cycle by their HQ in Armonk. Did it look swell in the hills near SwissRE and IBM HQs. Not so much, now.
gerald | 01.16.08 - 3:25 pm | #<
I was looking at a job in that area but couldn't afford the housing. Living on the wrong side of the tracks in White Planes didn't do anything for me. There was nothing under a million in Armonk.
Someone needs to say something about this! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they "WERE" making during the booming 90's!!! Now we are BAILING OUT THESE CROOKS....SOUNDS LIKE the good ol' 1980's Savings and Loan BAILOUT DAYS to me! http://www.fakepaycheckstubs.com
Dont put too much stake in Marty's "bottom-fishing" expedition in the MI/Fg's He has done very little homework (as relayed to me by a anon member of his research team). Reminds me of the $250 million bath he took in Collins and Aikman bonds 2 years ago on a very superficial "operational rebound" thesis......
Ziggurat,
Re. your comment at 10:11 p.m. - in my experience, the monoline premium is paid through a CDS entered into by the super-senior noteholder independent of the trust indenture. In that respect, the premium is in fact only subject to the risk of the counterparty (C, MER et al) not paying the premium. However, embedded into these documents are triggers to cause an EOD which then gives the super senior investors the right to accelerate or liquidate, depending on the deal structure. These provisions are usually put in there by the monolines and I think they will come back to bite them in the ass. Why? Whereas earlier they could continue receiving the premium and the supersenior counterparty could continue to hold their positions until they stopped receiving the coupon or 30 years at which time the principa; liability would be due. Now, by accelerating the deal or liquidating it, that date of reckoning is moved to some time in 2008. I think they've really screwed themselves.
Another thing I noticed with monoline wraps on senior RMBS/HELOC paper - the monoline makes payments as and when the collateral to wrapped note ratio drops below 1. So, as these deals degrade, even before the principal on some of these notes is due the monoline is obligated to pay to maintain the ratio. Depending on how many of these notes they've wrapped and how badly the underlying mortgages perform, things could get bad very quickly for the monolines.
Is my understanding incorrect?
Personally, I'm wary of shorting the monolines precisely because their position is so critical right now. With everything else going on, they're probably going to get some kind of bailout (ala CFC). At the very least, the agencies will be under enormous pressure not to downgrade them, for fear of the market meltdown scenario. Otherwise, I'd be buying puts along with the rest of the market.
As a sidenote - most RMBS wrapped note holders have hedged by buying protection on the monolines. I wonder who the counterparties on those CDS are ?
Personally, I'm wary of shorting the monolines precisely because their position is so critical right now. With everything else going on, they're probably going to get some kind of bailout (ala CFC).
"Still, it's nice that you can get rock solid AAA bonds yielding 14%."
As Zigurrat said, the bonds aren't AAA and they don't pretend to be rock solid - they're subordinated to the rest of MBIA's debt.
Canned Banker: "embedded into these documents are triggers to cause an EOD which then gives the super senior investors the right to accelerate or liquidate, depending on the deal structure. These provisions are usually put in there by the monolines and I think they will come back to bite them in the ass."
In many cases, the super senior investors are the monolines. Monolines do a fair bit of secondary wrapping, but not usually at the super senior level. Until recently, nobody thought it was worth it, and now they do, the monolines aren't willing or able to take on additional CDO exposure. When Citi first unveiled its big write downs of super senior exposures, it said that it had tried and failed to hedge it in Q3. The bulk of monoline exposure is from the primary market, and in CDOs the super senior exposure is often purely synthetic. There are no noteholders.
As for RMBS, monoline wraps cover scheduled interest and principal. If the bonds are pass through, then they only have to make up realised note shortfalls. If the notes have bullet maturities, then yes they cuold face immediate payouts.
" Did anyone go through the C material and try to figure out how much of their writedown was related to taking the SIV's back on their balance sheet?"
None of it, as far as I can tell. The SF write downs came almost exclusively from CDOs of ABS. SIVs aren't mentioned explicitly in the filing at all, by name or en masse. Indeed, the only item I can plausibly identify as SIV exposure is an increase in "long term liabilities" of $63bn during the fourth quarter. And long term liabilities seems to be a strange category for liquidity facilities.
This is gambling. I don't have a problem with gambling as long as the government isn't involved but I do have a problem with abusing the credit market with longshots that belong in alleys. Tactical Flashlights r c helicopter video game
Welcome to the 1st annual knifecatchers convention. Please be seated...
MBIA is teetering on the precipice. I wouldn't buy their debt for 50%. They're DOA within a year.
Hey, remember this line?
"There's too much LIQUIDITY sloshing around for anything to derail the current expansion."
MBIA would like a few drops of that liquidity surplus back, in order to help bail them out of their liquidity-binge type problems.
I used to cycle by their HQ in Armonk. Did it look swell in the hills near SwissRE and IBM HQs. Not so much, now.
If you're in so much trouble that you have to pay 14% to borrow money you're probably not capable of paying 14% to borrow money.
I think those kind of interest rates could bankrupt a healthy company.
Still, it's nice that you can get rock solid AAA bonds yielding 14%.
I can retire early now.
Is it me, but where's the CPI post?
Core inflation up, headline barely down and above 4%(which means 10 yr treasury yields are negative and even the 30 yrs are negative after taxes.)
I'll bet it has something to do with the warning that interest payments on these notes must be approved by insurance regulators, specifically NY State.
Do we know for sure that the underwriters managed to place all these notes? Or could they still be holding the bag?
ac,
"Still, it's nice that you can get rock solid AAA bonds yielding 14%."
Even better when you get them for 10.5% off par.
Cheers,
I read yesterday, some tard was bundling them into a CDO.
See if I can find it.
Cheers,
Spector, Roseman & Kodroff, P.C. Announces Investigation of Possible ERISA Violations in the MBIA, Inc. 401(k) Plan.
CNNMoney.com: 404 Page Not Found
Some days it doesn't pay to get out of bed.
Cheers,
Sorry if this has already been posted:
SIV Bondholders See Value Fall by 47%, Moody's Says
In some cases, ``dramatically low'' prices have been quoted, Moody's said, citing one SIV that received bids averaging 7 percent of face value for a collateralized debt obligation with the highest Aaa credit ratings.
This ain't your granddad's AAA
Pelosi just announced bi-partisan ship for an economic stimulus package,......better load up on ink for your printers and fax machines,,,there is about to be a run on ink...
Have ITM August puts on them... when Fitch affirms their AAA rating and they still fall, you know the situation's serious.
ABK is a thing of beauty today too.
I hate to see the tub of crap that rolls out when these guys go...
The 16 percent translates to $1.6 million on $10 million of debt and implies a 27 percent chance that MBIA will default in the next year, according to a JPMorgan valuation model. For five- year insurance, holders would pay $900,000 a year
MBIA's Capital Need Grows, Credit-Default Swaps Show (Update4) - Bloomberg.com
Nemo - This is what I was asking about earlier this am in another comments section...There is currently discussions of whether liquidation will occur 6B x 16? (Margin) it is a lot of stuff to hit the fan in short order.
" Victoria Finance Ltd., the $6.8 billion Cayman Islands-based SIV run by Ceres"
Has anyone laid out all the consequences of a failure of one of the monolines?
ZackAttack there was an excellent article in th FT (UK) about five weeks ago. It covered the issues rather well, imho.
Yikes, ABK is certainly looking ill. Pity the poor guy who recently commented here that he "bet his life savings on ABK". Bargain hunters beware (in an economy that's about to create banrkupt companies instead of easy credit)...
Can't they just get together and put it on their credit cards?
William Ackman of Pershing Square Capital Management talked about MBIA on Bloomberg last Thursday. I highly recommend watching the interview.
Bill Ackman on YouTube
Highlights:
* MBIA's numbers are presented net of reinsurance. About half of the reinsurance comes from Channel Re (rated AAA with $300 million capital)
* MBIA helped set up Channel Re in 2004 with a 17.4% ownership stake.
* MBIA shifted their riskiest exposures to Channel Re.
* MBIA needs to raise in excess of $10 billion of capital, depending on circumstances.
* If MBIA does not cut the dividend and cannot access cash held at its investment management subsidiary, they run out of cash at the end of this June. If they are able to access the cash, they run out of money by the end of this year.
His presentation can be found here:
Download
Nemo,
Previously posted but bears reposting...
Misean, I think you remembered HSBC setting up a CDO of MBIA bonds. HSBC guarantees the CDO, making it a bailout of MBIA by HSBC. I saw some interesting speculation about HSBC is throwing money it doesn't have down a very obvious hole but don't have time to track down links of that.
Nice haircut.
thanks!
Expired
.
Who coodanode, dude?
S&P slashes Orion Finance SIV ratings after default
NEW YORK, Jan 16 (Reuters) - Standard & Poor's on Wednesday cut its credit ratings on Orion Finance, a structured investment vehicle, after the fund defaulted on its obligations to pay off maturing commercial paper.
S&P lowered the fund's issuer credit rating to "D," for default, from "AAA," the top investment-grade rating. Orion's commercial paper and medium-term note ratings were also cut to "default."
[snip]
The MTN's are a comin'...
Pity the poor guy who recently commented here that he "bet his life savings on ABK".
That poor bastard.
OT
Goldman Sachs raised Wednesday its gold price forecasts to reflect expectations of a U.S. recession in 2008, which should lead to a lower U.S. dollar.
Analyst Oscar Cabrera raised his 2008 average gold price forecast to $910 an ounce from $800, his 2009 estimate to $870 an ounce from $852 and his 2010 projection to $940 an ounce from $907.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Gold bugs run don't walk.
ZackAttack,
Over the short term, we're probably not looking at a business failure of either the insurance company or holding company. We're looking at a possible ratings downgrade. This would compel investors owning bonds to sell those no longer rated AAA. They would drop quickly in price, maybe by about 10%. Institutions would be less willing to allow bonds to be used as collateral for loans and margin accounts.
The flow of new premium into monolines would dry up and eventually they would be forced into receivership by state insurance commissions.
Whoever is interested in a fair and balanced view of the credit market noticed that the TED spread declined again today.
O-Joe
Quick scan looks like 3 new lows on ABX (and deterioration generally), and 13 new highs on CMBX (and deterioration generally), with further widening of LCDX.
Standard & Poor's on Wednesday cut its credit ratings on Orion Finance, a structured investment vehicle, after the fund defaulted on its obligations to pay off maturing commercial paper.
S&P lowered the fund's issuer credit rating to "D," for default, from "AAA," the top investment-grade rating.
Well, I can stop wondering where my daily belly laugh is going to come from today.
The S&P rating scale has more steps than the escalators at the Union Station Metro, and when they finally get around to a "reevaluation" they drop it from a AAA to a D?! That's just awesomely shameless.
Apparently the "fog-the-mirror" standard that doesn't apply to jumbo stated-income loans any more is still alive and well for credit analysts.
Mook,
Aint dat da troot!
Fair Economist,
That was it. Nice, a AAA rated companies bonds needed to be CDO'd and insured to get a AAA rating on the surplus notes. My oh my, talk about grade inflation.
Cheers,
hat tip probert....???!
Whoever is interested in a fair and balanced view of the credit market noticed that the TED spread declined again today.
Liquidity != solvency.
Coodanode's cousin, Whodathunk has got to be wondering who bought these Pieces of... ummm... Paper.
Let me get this straight. 14% at par last month. 89.5 and counting today. What is that at honest AAA return equivalents?
I don't care. This isn't some sliding spectrum. 14% for a few months at best isn't on the same curve as a real investment. This is gambling. I don't have a problem with gambling as long as the government isn't involved but I do have a problem with abusing the credit market with longshots that belong in alleys.
I thought I remembered reading that HSBC CDO'ed the bonds too, but I talked to a guy at Morgan Stanley this morning who said it all got put away to retail. This is retail in the institutional sense, not ma and pa.
And, said retail is not too happy this morning.
Cote, I thought it was 14% yield at 95?
(Not that that makes it much better.)
What percentage of the municipal market is insured?
"Pelosi just announced bi-partisan ship for an economic stimulus package,......better load up on ink for your printers and fax machines,,,there is about to be a run on ink...
borkafatty | 01.16.08 - 3:48 pm | # __________
Mine don't use red ink....
"Has anyone laid out all the consequences of a failure of one of the monolines?"
I've compiled a bunch of info on the monolines (Ambac, MBIA) from various sources.
[ The Financial Ninja ]: Ambac, Monoline Insurer's: The End Game
[ The Financial Ninja ]: MBIA, Ambac: Update
TPTB won't let the monolines fail--someone will pour in capital, even if it requires coercion from the govt.
What percentage of the municipal market is insured?
ZackAttack | 01.16.08 - 5:10 pm | #
From Accrued Interest,
"About 45% of investment-grade munis are insured."
Thanks, everyone.
Asked and answered!
And how long is this going to take?
S&P Will Review Bond Insurers With New Assumptions (Update1)
By Christine Richard
Jan. 16 (Bloomberg) -- Standard & Poor's will re-examine the AAA credit ratings of bond insurers including MBIA Inc. and Ambac Financial Group Inc. after deciding that the housing slump will cause bigger losses from subprime mortgages than anticipated.
S&P Will Review Bond Insurers With New Assumptions (Update3) - Bloomberg.com
The S&P rating scale has more steps than the escalators at the Union Station Metro, and when they finally get around to a "reevaluation" they drop it from a AAA to a D?! That's just awesomely shameless.
Up the escalator, down the elevator shaft.
mbac may struggle to raise new capital: analysts
Performance of new MBIA notes suggests difficulties for rival bond insurer
Ambac may struggle to raise new capital, analysts say - MarketWatch
Looks like MBIAs reinsurance arm is in dire straits too:
CNNMoney.com: 404 Page Not Found
PartnerRe said the most recent announcement made by MBIA that it will record a fourth-quarter mark-to-market charge of $3.3 billion, including about $200 million in credit impairments, will lead to mark-to-market write-downs at ChannelRe in excess of its shareholders' equity.
word on the street was that the 2 largest shareholders in MBIA were asked (read:TOLD) to buy $200 million EACH of the wildly undersubscribed 14% surplus note. It was therefore (in distribution terms) a PIG out of the gate. Take it from a HY veteran, it still looks like its trying to find a home.....despite the fact that the fundamentals could make it a zero at any time.....
Before people get too excited, don't forget a couple of facts. First, as Ackman never fails to point out, the holding company isn't the same as the regulated monoline insurance subs. The holding company has been rated AA, not AAA. The surplus notes are essentially capital, not a bond. They were not AAA rated but got, I assume by default, a AA rating I assume based on the rating of the holding company. Anyway, the surplus notes should pay a decent rate of return since they aren't convertible and there is no upside, yet they are essentially equity.
Having said that, I am still short mbia and abk. That is, I have a modest number of puts.
The insurance subs are not normal financials, they are based on stone age new deal regulation and are inherently conservative. Not so conservative that they couldn't be blown up by structured finance, but not like a bank, anyway. You can't have a run on an insurance company, since the premiums are paid in advance.
Anyway, I don't particularly like Ackman and don't believe the subs are likely to run out of cash soon. It is too much of a black box. However, he may be right.
The market cap of both mbi and abk are in the $1.5b range, so the holding company equity is mostly gone. I don't think there are any shares to short.
word on the street was that the 2 largest shareholders in MBIA were asked (read:TOLD) to buy $200 million EACH of the wildly undersubscribed 14% surplus note. It was therefore (in distribution terms) a PIG out of the gate. Take it from a HY veteran, it still looks like its trying to find a home.....despite the fact that the fundamentals could make it a zero at any time....
Told to either pony up or we file BK and you get nothing and will like it?
The should've ordered the nuthin burger instead.
As far as the guy that had 25% of his holdings in abk, he seems like a young guy and I took a look at his blog. I was tempted to say something, but he looked like he had done some analysis, so I didn't see any point in arguing the merits.
If he has a few thousand in it, it could be a great investment lesson -- as patronizing as it sounds. He will be in good company with Marty Whitman. Marty seems to think the residue of mbi after an insolvency is still enough to make it a reasonable investment.
Did anyone go through the C material and try to figure out how much of their writedown was related to taking the SIV's back on their balance sheet?
I was looking at a job in that area but couldn't afford the housing. Living on the wrong side of the tracks in White Planes didn't do anything for me. There was nothing under a million in Armonk.
Someone needs to say something about this! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they "WERE" making during the booming 90's!!! Now we are BAILING OUT THESE CROOKS....SOUNDS LIKE the good ol' 1980's Savings and Loan BAILOUT DAYS to me! http://www.fakepaycheckstubs.com
Zig--
Dont put too much stake in Marty's "bottom-fishing" expedition in the MI/Fg's He has done very little homework (as relayed to me by a anon member of his research team). Reminds me of the $250 million bath he took in Collins and Aikman bonds 2 years ago on a very superficial "operational rebound" thesis......
HY....
I've owned a couple of Marty's value stocks and am aware that he doesn't always get it right.
I was wondering what he based his optimism on -- thanks for the heads up.
Ziggurat,
Re. your comment at 10:11 p.m. - in my experience, the monoline premium is paid through a CDS entered into by the super-senior noteholder independent of the trust indenture. In that respect, the premium is in fact only subject to the risk of the counterparty (C, MER et al) not paying the premium. However, embedded into these documents are triggers to cause an EOD which then gives the super senior investors the right to accelerate or liquidate, depending on the deal structure. These provisions are usually put in there by the monolines and I think they will come back to bite them in the ass. Why? Whereas earlier they could continue receiving the premium and the supersenior counterparty could continue to hold their positions until they stopped receiving the coupon or 30 years at which time the principa; liability would be due. Now, by accelerating the deal or liquidating it, that date of reckoning is moved to some time in 2008. I think they've really screwed themselves.
Another thing I noticed with monoline wraps on senior RMBS/HELOC paper - the monoline makes payments as and when the collateral to wrapped note ratio drops below 1. So, as these deals degrade, even before the principal on some of these notes is due the monoline is obligated to pay to maintain the ratio. Depending on how many of these notes they've wrapped and how badly the underlying mortgages perform, things could get bad very quickly for the monolines.
Is my understanding incorrect?
Personally, I'm wary of shorting the monolines precisely because their position is so critical right now. With everything else going on, they're probably going to get some kind of bailout (ala CFC). At the very least, the agencies will be under enormous pressure not to downgrade them, for fear of the market meltdown scenario. Otherwise, I'd be buying puts along with the rest of the market.
As a sidenote - most RMBS wrapped note holders have hedged by buying protection on the monolines. I wonder who the counterparties on those CDS are
?
Personally, I'm wary of shorting the monolines precisely because their position is so critical right now. With everything else going on, they're probably going to get some kind of bailout (ala CFC).
Yup.
"Still, it's nice that you can get rock solid AAA bonds yielding 14%."
As Zigurrat said, the bonds aren't AAA and they don't pretend to be rock solid - they're subordinated to the rest of MBIA's debt.
Canned Banker: "embedded into these documents are triggers to cause an EOD which then gives the super senior investors the right to accelerate or liquidate, depending on the deal structure. These provisions are usually put in there by the monolines and I think they will come back to bite them in the ass."
In many cases, the super senior investors are the monolines. Monolines do a fair bit of secondary wrapping, but not usually at the super senior level. Until recently, nobody thought it was worth it, and now they do, the monolines aren't willing or able to take on additional CDO exposure. When Citi first unveiled its big write downs of super senior exposures, it said that it had tried and failed to hedge it in Q3. The bulk of monoline exposure is from the primary market, and in CDOs the super senior exposure is often purely synthetic. There are no noteholders.
As for RMBS, monoline wraps cover scheduled interest and principal. If the bonds are pass through, then they only have to make up realised note shortfalls. If the notes have bullet maturities, then yes they cuold face immediate payouts.
" Did anyone go through the C material and try to figure out how much of their writedown was related to taking the SIV's back on their balance sheet?"
None of it, as far as I can tell. The SF write downs came almost exclusively from CDOs of ABS. SIVs aren't mentioned explicitly in the filing at all, by name or en masse. Indeed, the only item I can plausibly identify as SIV exposure is an increase in "long term liabilities" of $63bn during the fourth quarter. And long term liabilities seems to be a strange category for liquidity facilities.
This is gambling. I don't have a problem with gambling as long as the government isn't involved but I do have a problem with abusing the credit market with longshots that belong in alleys.
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