bac acquires the parent, which has 2 main assets — the servicing book and the thrift charter. now bac has bought (stripped) these 2 assets and left the parent debt behind. the question will center around did bac pay a fair value price for these 2 assets. if not, they will have to pony up more money if the bk trustee is successful when it litigates (this litigation is certain).

the other question surrounds the piles of litigation that cfc is under. does this structure allow bac to ideminfy themselves from it? the purchase by bac never made sense as they should have allowed cfc to fail which would provide ideminification. as such, the current transaction does not make economic sense; when this happens usually there is something below the surface to make it work. perhaps bac has assurances from its regulators or politicans friends that they will support or shield bac from these lawsuits.

“CapitalSource is not acquiring FIL, Fremont General Corporation, any contingent liabilities, or business operations except the retail branch network.”

– CapitalSource CFO Fink.

http://investor.capitalsource.com/phoenix.zhtml?c=114643&p=irol-newsArticle&ID=1128839&highlight

I’m sure BofA would like to avoid the debt but, assuming that the bondholders have a right to those assets in the first place, any attempt to transfer them out of the entity subject to the bonds without fair consideration can be enjoined and reversed under garden-variety state law.

If CFC were in BK then the BK laws with similar rights are also available.

The only way BofA will get away with stiffing bondholders is if the bond agreements themselves never provided recourse against the servicing business.

I don’t know the capital structure of the group of entities that are traded under CFC. And apparently part of the assets are held under the bank entity and some are not.

My understanding is that CFC owes a ton of money to the FHLB. It might be easier to bulldoze another quasi-public entity than savvy wall street bondholders.

BofA may want to try this and use any lawsuit as a way out of the deal if they can’t get away with it.

Purportedly, there are some huge tax benefits to B of A in addition to the servicing business.

The nice thing about being a bondholder is that you typically can protect your interests fairly easily. The contract determines your rights and nobody can transfer a valuable asset out from under you to a related entity or without fair value, so long as you are willing to sue.

Update: Are Countrywide Financial Bond Holders Bankruptcy Remote?

http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=277

Best,

RC Whalen

As I said, I am not current on the state of play, but this deal looks awfully transparent as to its effects. And remember, there has been a dearth of corporate bankruptcies in recent years.

I don’t know the terms of these bonds, but my impression is that cov lite took place preponderantly in LBO deals that got sold via collateralized loan obligations. Given the dearth of good old fashioned investment grade (at the time of issue) deal, the Countrywide bonds may have had more conventional terms.

http://biz.yahoo.com/e/080117/cfc8-k.html

It’s OK, we are redistributing debt with countries that refuse to balance their currencies with ours.

check out the New York Fed statement from 3 years ago @

http://www.newyorkfed.org/newsevents/speeches/2006/gei060309.html

It allows foreign countries to own (Your) assets with an equalibrium of lower interest rates.

In other words, the dollar is being “Crashed” by lower interest rates.

It is not the end of the world, just a return to double digit inflation at the American Consumers expense…

Shocked, I doubt it… We have become acclimated to getting it up the wazoo!

What constrains most of the really fun scenarios is the covenants on all the various levels of lending. It seems like management cannot sneeze without tripping over some sort of covenant that puts them in technical default. But of course much of the recent lending has been continually referred to as “covenant lite.” So if the covenant-light bondholders, are going to get screwed, it is their own darned fault.

I was probably not sufficiently clear in my intro to the two long extracts, and am not certain that you read through the entire IRA piece.

I’ll admit to being remiss in not reading the underlying SEC docs (there are only so many hours in the day) but as IRA tells it, this is not a normal transfer of all assets and liabilities to a merger sub. The FDIC regulated depositary institution will somehow be conveyed separately. This is the extraction of a material entity from the deal and to me does raise questions of fraudulent conveyance.

The bank collapsed late last year under the weight of the US sub-prime lending crisis and was re-floated by Bank of England at a cost of 400 pounds for each person in the United Kingdom (24 billion pounds).

The memo led to stories in the Financial Times, the Telegraph and many others. Despite being of clear public interest, the document and even the some of the stories arising from it fell to censorship injunctions. Only Wikileaks continues to withstand the attack.

Northern Rock hired Schillings, an expensive London firm of Lawyers and public relations consultants. Schillings state in their legal threats to Wikileaks:

“Pursuant to an Order of the Royal Courts of Justice dated 13th November 2007 (’the Order’) no person shall publish or communicate or disclose to any other person (other than by way of disclosure to legal advisers instructed in relation to the proceedings for the purpose of obtaining legal advice), inter alia, the information contained within the ‘Northern Rock Executive Summary’