August 11, 2009

There’s an interesting bit of law being litigated, regarding securitization and bankruptcy:

Terms of the two Lehman transactions, named Dante after the entity that issued the notes, specify that investors have first claim on whatever money is available if Lehman defaults or goes bankrupt. While the U.K.-based contract favors the noteholders, U.S. bankruptcy law normally protects a debtor company’s assets. Lehman is asking the bankruptcy judge to rule in its favor.

Not Yet Tested

Not yet tested is whether U.S. law permits the investors to use a written contract to give themselves priority claims after a bankruptcy. In the U.K., the related case was brought against Lehman and Bank of New York by a trustee for Australian noteholder Perpetual Trustee Co.

Rating agencies could start to downgrade credit-linked notes if Peck says Lehman can take away assets protecting the investments, debt research firm CreditSights Inc. said in a July 12 report. Insulating such deals from bankruptcy “forms the bedrock of securitization,” CreditSights analyst Atish Kakodkar said in the report.

Comrade Obama announced today that Americans are too stupid to invest:

The main difference in the proposal from earlier outlines is a provision to “better protect” small municipalities and “unsophisticated investors” by limiting their eligibility to trade derivatives. The rest of the statement mirrors earlier proposals by asking Congress to impose higher capital and margin requirements, move most derivatives to regulated exchanges and clearinghouses and impose supervision over all dealers.

Frank and Peterson’s proposal also left open whether to ban trading of so-called naked credit-default swaps, which were designed to insure against the default of a company’s bonds. Lawmakers and administration officials say the product has been abused by hedge funds and other investors who used them to speculate on the likelihood of a company’s collapse.

Naked contracts or positions are those in which the buyer doesn’t own the underlying asset or stock on which the trading is based.

Frank told reporters last month that he supports proposals to restrict derivatives sales to municipalities.

Soon all shorting will be illegal, and then everything will always go up!

DBRS downgraded some MAV2 notes today (MAV2 is the reincarnation of ABCP):

Negative rating migration in the underlying asset interests, particularly in CDO transactions with relatively low levels of credit enhancement, has increased the required enhancement level for the Notes to above that commensurate with the “A” rating assigned on January 21, 2009. Numerous reference entities have been downgraded (in some cases by more than ten notches), resulting in higher probabilities of default for the CDO asset interests. Monoline downgrades in particular have put pressure on the rating of the Notes. Any future deterioration in the credit quality of monoline insurers may lead to further ratings action. Figure 1 below lists the most notable downgrades of reference entities since January 1, 2009. In addition, a number of credit events, coupled with historically low realized recoveries, have reduced enhancement levels available to the CDO transactions. Figure 2 below lists the credit events and International Swaps and Derivatives Association (ISDA) protocol recoveries since January 1, 2009. These factors have resulted in a rapid deterioration in the credit quality of certain CDO asset interests.

Preferreds continued their winning ways today (this is the tenth consecutive trading day of gains for PerpetualDiscounts, over the course of which they have gained 4.81%) amidst continued heavy volume.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.4845 % 1,306.1
FixedFloater 6.40 % 4.65 % 48,443 17.73 1 3.0303 % 2,400.7
Floater 3.49 % 3.49 % 123,724 18.50 2 1.4845 % 1,631.7
OpRet 4.87 % -7.78 % 139,776 0.09 15 0.3517 % 2,266.9
SplitShare 5.71 % 6.47 % 93,891 4.10 3 0.1970 % 2,034.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3517 % 2,072.9
Perpetual-Premium 5.74 % 5.26 % 73,591 2.65 4 0.3093 % 1,865.6
Perpetual-Discount 5.85 % 5.89 % 173,199 14.03 67 0.1544 % 1,754.3
FixedReset 5.50 % 4.05 % 512,040 4.15 40 0.0083 % 2,100.6
Performance Highlights
Issue Index Change Notes
W.PR.H Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 22.43
Evaluated at bid price : 23.07
Bid-YTW : 6.00 %
BAM.PR.B Floater 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 11.36
Evaluated at bid price : 11.36
Bid-YTW : 3.49 %
POW.PR.B Perpetual-Discount 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 22.07
Evaluated at bid price : 22.52
Bid-YTW : 5.99 %
BAM.PR.K Floater 1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 11.20
Evaluated at bid price : 11.20
Bid-YTW : 3.55 %
GWO.PR.F Perpetual-Discount 1.57 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-10-30
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 5.90 %
W.PR.J Perpetual-Discount 2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 23.33
Evaluated at bid price : 23.62
Bid-YTW : 5.99 %
MFC.PR.A OpRet 2.52 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 26.43
Bid-YTW : 3.22 %
IAG.PR.A Perpetual-Discount 2.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 6.15 %
BAM.PR.G FixedFloater 3.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 25.00
Evaluated at bid price : 17.00
Bid-YTW : 4.65 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 279,261 RBC crossed 266,400 at 27.80. Nice ticket!
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.90
Bid-YTW : 4.25 %
MFC.PR.B Perpetual-Discount 187,631 RBC crossed 183,000 at 20.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 20.31
Evaluated at bid price : 20.31
Bid-YTW : 5.82 %
TD.PR.R Perpetual-Discount 88,141 RBC crossed 84,000 at 24.65.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 24.41
Evaluated at bid price : 24.63
Bid-YTW : 5.72 %
SLF.PR.B Perpetual-Discount 69,796 RBC crossed 25,000 at 20.34, then 22,200 at 20.36.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 20.27
Evaluated at bid price : 20.27
Bid-YTW : 6.01 %
TD.PR.O Perpetual-Discount 69,545 TD crossed 45,000 at 21.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 21.40
Evaluated at bid price : 21.68
Bid-YTW : 5.63 %
BMO.PR.L Perpetual-Premium 66,735 Nesbitt crossed 50,000 at 25.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-11
Maturity Price : 24.74
Evaluated at bid price : 24.96
Bid-YTW : 5.82 %
There were 39 other index-included issues trading in excess of 10,000 shares.

5 Responses to “August 11, 2009”

  1. lystgl says:

    “Americans are too stupid to invest”.
    Yes and the European, Canadian, Asian and American “professional” traders, bankers and financial gurus ordinary people entrust their money to have done so well right? I have to think most, yourself included, are still well below where you were a year ago.

  2. jiHymas says:

    I take it that you have no problems in being presented with a list of allowed investments by a 24-year-old regulator with a two-year certificate in boxtickingology?

    I’m doing quite well, thank you, as are many – if not most – people who pursued a rational investment strategy without leveraging their investments up to the maximum simply because they could – but thank you for your concern.

  3. lystgl says:

    You are still under water though aren’t you?
    If so, you can thank the professionals, SEC, OSC, ratings agencies, insurance oversight committees and government. Most of them, I’m sorry to tell you, aren’t 24 year olds but supposedly seasoned financial genii.
    My “concern” is for the people who invested in CDS and MBS/ABS thinking they were actually triple and double A rated securities. I have a concern for those people who thought they were investing in safe money market funds while all-the-while these self styled, self aggrandizing “professionals” were putting their money into these lotteries and ponzi schemes. I don’t recall Lehman Bros. Merrill Lynch, Countrywide, AIG, Washington Mutual, Wells Fargo, Bank of America etc. etc. etc. as being run by clean shaven 24 year olds. I don’t think our banks, banks that took huge write offs on these, are run by 24 year olds but then I could be wrong. My “concern” is the arrogance people in the financial industry continue to display.
    I’m no Obama fan but he’s absolutely correct on this. Only crook in jail thus far is Madoff and, as it stands, he’s probably going to be the only one although there should be a hell of a lot more in there with him.

  4. jiHymas says:

    Nope – my investement returns are on the right side of the ledger. And if they weren’t, I wouldn’t dream of crying boo-hoo-hoo and blaming anyboy other than myself.

    You’ve really got a lot to learn about the investment knowledge of regulators. Get it through your head: they don’t give a shit whether or not something is a good investment or not; they do not have the skills even to begin making such a decision. They’re bureaucrats, put in place to buffer the politicians from blame and motivated solely by a desire to avoid blame themselves, whether it’s fair or unfair.

    “triple and double A rated securities”? So they were, subject to the assumptions of the models. Anybody who invested on the basis of such opinions without understanding these assumptions deserves to have lost a bunch of money; so does anybody who blindly follows any advice.

    “safe money market funds”? As far as I know only one retail MMF has broken the buck – Reserve Primary, for which recovery is something like 95 cents on the dollar.

    Why are you spouting irrelevancies about Lehman, et al? I was talking about regulators, who tell you what you may and may not do, not private companies who provide you with a menu of options from which any grown-up can choose.

    My “concern” is the arrogance people in the financial industry continue to display.

    And my concern, lystgl, is your arrogance in telling me what I may and may not invest in. Mind your own business. If you don’t want to invest in derivatives, that’s a very easy thing for you to accomplish: Just Say No. Do not presume to tell me that I can’t either.

  5. lystgl says:

    Your initial statement about American investors and subsequent retorts sir, are arrogant. You won’t be getting any more replies from me, though, by the lack of responses to your postings (ravings) of late, you’re pretty much talking to yourself these days anyhow.

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