Comments on: Leveraged Funds Hurry to Sell $100 Billion of Debt http://www.nakedcapitalism.com/2008/02/leveraged-funds-hurry-to-sell-100.html Mon, 23 Nov 2009 10:17:20 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Tom http://www.nakedcapitalism.com/2008/02/leveraged-funds-hurry-to-sell-100.html#comment-4711 Tom Tue, 04 Mar 2008 14:56:00 +0000 http://www.nakedcapitalism.com/2008/02/leveraged-funds-hurry-to-sell-100-billion-of-debt/#comment-4711 I read Birgit's piece, and whilst I have a lot of time for her generally, I believe she is off the mark. She's definately right that the rolling off of senior debt is a massive challenge to the asset markets (no-brainer), but I believe she's been overly simplistic in this assessment. <br/><br/>Firstly, asset sales will be driven by net redemptions, not gross. Given that many SIVs (including the largest) are funded for the next 2-3 months, this should cushion the readjustment process. In addition, Birgit's numbers include Cullinan (fully restructured as of Feb 21st) and Asscher (currently negotiating restructuring), both of which contribute(d) significantly to the MTN market. Finally, the headline numbers do not take into account the funding facilities that have been committed / put in place by sponsors such as Citi and Dr, which will clearly be drawn down as / when necessary to meet senior debt redemptions. At the expense of capital note holders, I should add. I read Birgit’s piece, and whilst I have a lot of time for her generally, I believe she is off the mark. She’s definately right that the rolling off of senior debt is a massive challenge to the asset markets (no-brainer), but I believe she’s been overly simplistic in this assessment.

Firstly, asset sales will be driven by net redemptions, not gross. Given that many SIVs (including the largest) are funded for the next 2-3 months, this should cushion the readjustment process. In addition, Birgit’s numbers include Cullinan (fully restructured as of Feb 21st) and Asscher (currently negotiating restructuring), both of which contribute(d) significantly to the MTN market. Finally, the headline numbers do not take into account the funding facilities that have been committed / put in place by sponsors such as Citi and Dr, which will clearly be drawn down as / when necessary to meet senior debt redemptions. At the expense of capital note holders, I should add.

]]> By: Ginger Yellow http://www.nakedcapitalism.com/2008/02/leveraged-funds-hurry-to-sell-100.html#comment-4670 Ginger Yellow Mon, 03 Mar 2008 11:27:00 +0000 http://www.nakedcapitalism.com/2008/02/leveraged-funds-hurry-to-sell-100-billion-of-debt/#comment-4670 The difference is that SIVs have global assets, and fear over SIV sales is the main thing that has crippled ABS markets in Europe and Australia, where credit issues are minimal. It's no surprise that the US MBS market is screwed, CDO liquidations or no. The difference is that SIVs have global assets, and fear over SIV sales is the main thing that has crippled ABS markets in Europe and Australia, where credit issues are minimal. It’s no surprise that the US MBS market is screwed, CDO liquidations or no.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/02/leveraged-funds-hurry-to-sell-100.html#comment-4577 Anonymous Fri, 29 Feb 2008 14:09:00 +0000 http://www.nakedcapitalism.com/2008/02/leveraged-funds-hurry-to-sell-100-billion-of-debt/#comment-4577 As serious as this may be ($100 billion in forced SIV liquidation), the real monster is CDO forced liquidation. <br/><br/>There are about $2 trillion in CDOs outstanding. As the MBS gets downgraded going forward, CDOs will go into "technical default" en masse. Technical default usually leads to forced liquidation. <br/><br/>I think this could very well lead to systemic financial meltdown. There is no bailout scheme that can prevent this because of the dispersion and multitude of entities involved. Welcome to the brave new world of securitization. As serious as this may be ($100 billion in forced SIV liquidation), the real monster is CDO forced liquidation.

There are about $2 trillion in CDOs outstanding. As the MBS gets downgraded going forward, CDOs will go into “technical default” en masse. Technical default usually leads to forced liquidation.

I think this could very well lead to systemic financial meltdown. There is no bailout scheme that can prevent this because of the dispersion and multitude of entities involved. Welcome to the brave new world of securitization.

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