Comments on: MBIA Issues Debt at Distressed Yield

By: Anonymous

Anonymous — Sun, 17 Aug 2008 15:41:00 +0000

"Gee, Marty Whitman was once considered to be savvy, but this looks like a classic panicked trader's reaction, throwing good money after bad in the hope that you can persuade the market. That rarely succeeds, and only when you can exit on the momentum you've created. Certainly not the position Third Avenue is in."

I still consider Marty Whitman to be saavy. Remember one of Whitman's investment tenets "focus on what is not what the market thinks." A panicked trader he is not. The turnover on TAVFX is generally below 10% - very long time horizon. It may be higher in 2008 due to fund outflows. Per most recent shareholder letter, Whitman increased his stake in the surplus notes at very attractive yields.

A few other thoughts.

Dinallo approved first interest payment on surplus notes in July. Stock is rallying. MBIA insurance sub generated positive cash flow for the first six months of 2008.

Despite its effective run-off status, the company appears to be attractively priced. I'll bet on Whitman.

I hope these posts are saved for a year or two. I believe those posters who mindlessly parroted Bill Ackman will be proven wrong. We shall see.

Third Avenue Shareholder
MBIA Shareholder

By: RK

RK — Sat, 12 Jan 2008 14:06:00 +0000

Ackman did a video interview on Bloomberg this week, giving his rationale for his large short position. First, NYS Insurance Superintendent Eric Dinallo has said his FIRST duty is to protect the policyholders of the insurers. He has the authority
to withhold interest payments from bondholders if
such would threaten the Insurer’s ability to meet default obligations. Second, MBI has a 9.1 B exposere to a CDO squared, larger than recently stated. These can have Very low recovery rates. This is part of a total 30B exposure to CDOs. He thinks MBI needs to raise 4B right away, and ultimately 10B, to survive. So he says the 14% bond may be a zero coupon. Don’t ask me. I don’t understand this stuff.

By: Anonymous

Anonymous — Sat, 12 Jan 2008 00:48:00 +0000

The Third Ave news was on CNBC, Yves, so who knows.
I almost spit up coffee when I heard it, and my reaction was the same as yours.
As for Whitman (who I’ve followed for a long time and have great respect for), I’ve been absolutely perplexed by his monoline stake. His whole premise of investing is to evaluate common equity as if it were debt, i.e. a capital cushion able to withstand the fattest of the tails, and the monolines…well…that they are not!
Quite a pissing contest between Whitman and Ackman. My money is with Ackman, though I thoroughly rethought that position when Whitman announced his stake and tried to figure out what he sees that Ackman does not. All I could figure is that he has vastly underestimated the reckless lending that has just recently consummated, and therefore underestimates MBI’s potential exposure. Also, it’s always part of the bottoming process to have skilled value guys get in too early, and get blown up a little.
RJ

By: Yves Smith

Yves Smith — Fri, 11 Jan 2008 23:39:00 +0000

Brian,

That it quite a bit of information. I looked at hoi polli news (search on Google News) and didn't see it there.

Gee, Marty Whitman was once considered to be savvy, but this looks like a classic panicked trader's reaction, throwing good money after bad in the hope that you can persuade the market. That rarely succeeds, and only when you can exit on the momentum you've created. Certainly not the position Third Avenue is in.

By: Brian

Brian — Fri, 11 Jan 2008 23:20:00 +0000

There was a story out earlier today that Third Avenue, currently an owner of a substantial and deeply under water equity stake, bought a meaningful portion of the deal. Imagine the yield if this less than dis interested buyer was not in the mix

By: Lune

Lune — Fri, 11 Jan 2008 23:07:00 +0000

Almost forgot Nouriel Roubini's great quote from last month:

"a business model that cannot survive without an AAA rating is a business model that cannot fundamentally deserve an AAA rating"

To which I guess the corollary is that any company that needs an emergency infusion of cash at near-default rates shouldn't be AAA either. Regardless of whether they're successful in raising that money.

By: Lune

Lune — Fri, 11 Jan 2008 23:03:00 +0000

So the “Ratings agencies” are calling this debt Aa2 or AA, while the markets are calling it below junk. Got it.

Anyone who still follows the “analysis” of these esteemed ratings agencies deserves to be separated from their money.

By: Ken Houghton

Ken Houghton — Fri, 11 Jan 2008 22:50:00 +0000

So they're issuing debt at yields not seen since right before the Argies changed governments or Italy wasn't part of the EU--and their expectation is that they will, through this, be able to maintain their AAA rating.

Got it.

The thing is, they may well be correct, even if all those "unsophisticated investors" (you know, the hedge funds, pension funds, SWFs, and SIVs that bought the AAA "radioactive waste" MBSes) only worry about credit ratings, not credit quality.

I wouldn't want to be an MBIA shareholder, though.