{"id":1110,"date":"2007-08-28T12:59:02","date_gmt":"2007-08-28T16:59:02","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=1110"},"modified":"2007-08-28T12:59:02","modified_gmt":"2007-08-28T16:59:02","slug":"sub-prime-dgun-suspends-redemptions","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=1110","title":{"rendered":"Sub-Prime! DG.UN Suspends Redemptions"},"content":{"rendered":"

Sorry about all this sub-prime stuff<\/a> in a blog that usually sticks pretty close to its knitting, but this is a lot of fun!<\/p>\n

Global Diversified Investment Grade Income Trust (TSX: DG.UN) (“Global DIGIT”) has announced<\/a>:<\/p>\n

that, considering the liquidity problems of MMAI-I Trust (“MMAI”) due to its inability to roll its maturing commercial paper in the present state of the Canadian asset-backed commercial paper market, it will not have sufficient financial resources to allow for the payment of the redemption price for the redemption of Units and consequently must announce the suspension, until further notice, of the August 31st, 2007 annual and quarterly redemptions of Units.<\/p><\/blockquote>\n

This is a fascinating investment scheme. What they have done, according to their financials<\/a> is (with lots of rounding by me):<\/p>\n

– taken $89-million of unitholders equity<\/p>\n

– borrowed about $1,400-million, mostly as commercial paper<\/p>\n

– put all this money into term deposits in banks, at the Bankers’ Acceptance rate plus a spread.<\/p>\n

– written Credit Default Swaps<\/a> against a portfolio of mainly mortgage backed securities and pledged the term deposits as security (note that writing a CDS gives you exposure and, hopefully, yield basically equivalent to what you wrote the CDS on)<\/p>\n

The point? It’s discussed<\/a>:<\/p>\n

The Trust\u2019s objective (save for any loss exceeding the first loss amount) is to provide a return on investment of 5.94% per annum to Unitholders up to September 7, 2009 and thereafter a floating distribution equal to the rate of bankers acceptance plus 2%.<\/p><\/blockquote>\n

Units cost $10.00 at issue in September 2004, of which sixty-five cents<\/strong> went to start-up costs. The provide a handy computation of their returns since inception, using a starting\u00a0point of $9.35 net\u00a0… they’ve made about 5.5% annualized.<\/p>\n

It seems to me like a helluva complicated & (term-mismatch-)\u00a0risky & very highly-leveraged way to go after BAs+200, but I should have said that three years ago if I wanted to be taken seriously.<\/p>\n

And now they’re having a little difficulty rolling their CP, have suspended redemptions and I see that DG.UN is now quoted at $2.90-99 on the TSX<\/a>, compared with a NAVPU of $9.17 reported as of 2007-6-30.<\/p>\n

Y’know, the underlying doesn’t look all that terrible to me … having looked at it very, very briefly and with no intent of investing or recommending. The big question is how much of the lolly the CP holders are going to grab and, frankly, I’m not going to rip apart the prospectuses trying to find out. I’m not going to pay for any expensive legal opinions, either! But it does seem to me that this very, very distressed security that has enormous liquidity problems would be worth looking at …\u00a0although, until we know more about what the CP guys are going to take, it’s a wild speculation and, what’s worse, blind.<\/p>\n

Too bad the damn thing’s $1.4-billion … that’s getting into serious money that will be hard to finance in this environment … which, I imagine, is part of the problem. If it were smaller, it would be (I think) attractive to the hedge fund crowd. If any of my readers has $1.4-billion they want to put into a nice floating rate note with a term of nine years, call me and maybe we can help these guys out a little … after looking at this stuff a whole lot more closely, of course!<\/p>\n

Hat tip : Financial Webring Forum<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Sorry about all this sub-prime stuff in a blog that usually sticks pretty close to its knitting, but this is a lot of fun! Global Diversified Investment Grade Income Trust (TSX: DG.UN) (“Global DIGIT”) has …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[29],"tags":[],"class_list":["post-1110","post","type-post","status-publish","format-standard","hentry","category-sub-prime"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1110","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1110"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1110\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1110"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1110"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1110"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}