PrefBlog

Accrued Interest leads off with some thoughts on the collapsing CMBS market. CMBS opened 40bp wider this morning – panic is the only appropriate word.

Meanwhile, US CPI is normalizing:

Consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, after being unchanged the prior month, the Labor Department said in Washington. Excluding food and energy, so-called core prices unexpectedly fell for the first time since 1982.
…
Prices increased 3.7 percent in the 12 months to October, the smallest year-over-year gain since October 2007. They were forecast to climb 4 percent from a year earlier, according to the survey median.

The core rate increased 2.2 percent from October 2007, after a 2.5 percent year-over-year increase the prior month.

Citigroup is taking on a whack of SIV assets:

Citigroup Inc., the fourth-biggest U.S. bank by market value, agreed to acquire $17.4 billion of assets held by structured investment vehicles advised by the company.

Citigroup said today in a statement that the value fell from $21.5 billion as of Sept. 30, reflecting market declines of $1.1 billion and $3 billion in debt that matured or was sold.

This continues the re-intermediation process that has culminated in this cycle with the Fed grossing up its balance sheet and is also hitting the leveraged loans market:

The price of the average actively traded leveraged loan fell 2.6 cents to 71.2 cents on the dollar since Nov. 13, according to Standard & Poor’s LCD. Prices have slumped 4.4 cents since Nov. 4, reversing a rally of more than 8 cents on the dollar since the all-time low last month.

This is not a good sign for consumation of the BCE deal – even if the banks like the deal (even when properly risk-adjusted!) they might not have room for it.

There’s a report (h/t: Financial Webring Forum) from the Globe & Mail that the BCE buying consortium is issuing capital calls:

That means the two funds are asking institutional investors to pony up cash that was previously committed to each group, in order to pay for BCE.

These calls are routine in buyouts, and speak to the fact that the private equity funds are doing what’s needed to close the long-delayed transaction by Dec. 11. The move follows on BCE’s push last week to buy back some of its outstanding bonds.
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Capital calls are to be expected at this stage in the BCE buyout. The issue is whether the limited partners -typically pension funds – will step up with cash. Under certain circumstances, backers can refuse to fund a deal that the private equity fund has agreed to.The penalty for pulling out is typically 8 per cent of the value of the contribution that was requested.

Well, maybe I’m a cynic, but I don’t see this as meaning anything one way or another. Of course everybody’s pretending the deal will go through and making sure they go through all the motions, carefully vetted by an expensive team of lawyers. The last thing you want is to be on the hook for the break-up fee! Any speculation as to whether the deal will actually close or not remains speculative.

Assiduous Reader MP – who, I think, makes something of a hobby of SEDAR’s New Prospectus Page – alerts me to some massive, massive shelf prospectuses, including $4.5-billion in debt and preferreds from National Bank. There’s also some very hopeful filings for proposed Brompton Group Split Share corporations … whethere anything comes of them is another matter!

Triple A CMBS widened another 100bp today. US Corporates have reached an all-time wide, with continued term inversion for credit product.

What can I say? It was a lousy day. It was a sloppy day. Long Corporates in Canada have come back in to 7.50%; PerpetualDiscounts now yield 7.56% pre-tax dividend, equivalent to 10.58% pre-tax interest … which means spreads have rocketted out to 308bp. All in the blink of an eye.

There were forty-four other index-included $25-pv-equivalent issues trading over 10,000 shares today.

This entry was posted on Thursday, November 20th, 2008 at 12:17 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.