Simon Offer For GGP Values Bankrupt REIT At 8% Cap Rate

A quick preliminary read of the Simon proposal to acquire GGP for $10 billion, via Bank of America, indicates a cap rate of 8% "assuming growth of 3.5% on top of the annualized NOI stream." The offer values GGP at $9/share, including $3 for the land business. As readers will recall there has been a difference in opinions between Hovde and Ackman on GGP's value, the first of which gets an "implied equity value of $5.73 per share at a 7.5% cap rate and negative $5.03 per share at an 8.5% cap rate which after incorporating the conversion of the unsecured debt into equity at price of $6 per share, the implied equity value is $5.94 per share at a 7.5% cap rate and $3.62 per share at an 8.5% cap rate," while Ackman is a tad more ambitious: "based on cash NOI (not adjusted for lease termination fees, tenant allowances, maintenance capital expenditure) for LTM ending Sep 2009, Ackman values GGP at $23.7, $32.0 and $41.6 per share at cap rate of 7.21%, 6.71% and 6.21%, respectively." Seems like Hovde is just a little bit closer in his valuation (assuming no overbid). The OCC supports the Simon offer as they get taken out at par.

Frontrunning: February 16

• Russian President Medveded recommends to Papandreou that Greece seek aid from IMF and WB (Kathimerini, h/t Paul)
• Are Goldman and Paulson partnering to profit from the downfall of an entire country/continent? (LittleSis)
• Weigh in on the FDIC proposal on executive pay (HuffPo, h/t David)
• Otmar Issing, former ECB executive and current Goldman Sachs advisor: Europe cannot afford to rescue Greece (FT) and Simon Johnson's take down (Baseline Scenario)
• Bazooka time: Henry Paulson thinks he is qualified to give advice on how to regulate banks (NYT)
• Spain has fingers crossed as it comes on deck with 15 year bond sale (Bloomberg)

RANsquawk 16th February Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 16th February Morning Briefing - Stocks, Bonds, FX etc.

Paging Richard Koo: We Need A Shirakawa Translator

We are having some temporary trouble translating the following statement by BOJ's Governor Masaaki Shirakawa "We are serious about ending deflation. It will take time and
it's not something the BOJ alone can achieve. But we will be
doing all we can." We are confident that there has to be some context here, rendered into logical argument by Richard Koo, as otherwise all those thousands of pages of powerpoint slides, filled with Nomura-produced charts demonstrating that sooner or later Japan will pull out of the quicksand, just a few more quadrillion of yen stimuli, mix and boil, will have been for naught. Alternatively, thousands of Zero Hedge posts will not have been for naught if and when Fed Chairman Bernanke utters some variation on a theme by Shirakawa.

Guest Post: The Jobs Plan We’d Get If Leading Growth Economists And Innovation Scholars Weren’t Being Volckerized — Part 2

Part 1 makes a case that an ideal way to catalyze job creation in the U.S. is to subsidize American consumers and producers of customized
education, and American operators of associated online markets. Part 1 concludes by speculating about the reasons that said subsidies are
absent from all talk of "jobs stimulus." From part 1: "A guess? In two words? Banks, children."

Is Titlos PLC (Special Purpose Vehicle) The Downgrade Catalyst Trigger Which Will Destroy Greece?

The media world is aflutter with recent revelations that Goldman may have facilitated Greece in creating an SPV that "rebalanced" budget payments via an interest rate swap arrangement, which the NYT describes as "a currency trade rather than a loan, [which] helped Athens meet Europe’s deficit rules while continuing to spend beyond its means." For those curious to get a much more detailed perspective on the mechanics of not just this, but a comparable Goldman-facilitated transaction, we suggest the following article in Risk Magazine, which focuses on a similar prior deal completed over six years ago. Yet we are fairly confident that all this barrage of information is merely a Houdini distraction act: the prospectus of the February 2009 securitization deal clearly delineates the mechanics of the deal; it was full public knowledge. Of course, a Europe gripped by sudden chaos due to their aggressive and quick "bail out" response with no regard for public backlash, is now taking full advantage of this recent "discovery" to make it seem that Greece and Goldman were hiding even more information: Bloomberg reports that "Greece was ordered by European Union regulators to disclose details of currency swaps it may have used to deal with the debts that threaten to swamp its economy." Germany's CDU has gone one step further and claims that the "Goldman deal broke the spirit of Euro rules." Alas, this is nothing but more scapegoating while Europe tries to find its bearings and, if possible, back out of the bail out while finding more pretexts to throw Greece out of the euro zone entirely. If it takes a Goldman smear campaign, so be it.

However, where the rub truly lies, and where things for Greece may get very hairy fairly quick, is in the interplay between the rating agencies and the rating of the Goldman underwritten swap agreement securitization SPV known better as Titlos PLC. As one recalls, it was precisely the rating agencies that were the proximal catalyst that started the collateral call cascade that ultimately resulted in AIG's failure and subsequent bailout (ignoring for a moment the pent up toxicity on AIG's books: both AIG then, and Greece now, are in deplorable shape: the question is what will bring it all to the surface). So here are some recent facts: On December 23, 2009, Moody's downgraded Titlos, following the prior day's downgrade of Greece itself from A1 to A2 with a negative outlook. Fact: last week Moody's said it could further downgrade Greece to Baa1. Fact: the Titlos PLC rating mirrors that of Greece itself. Fact: according to Moody's "Framework for De-Linking Hedge Counterparty Risks from Global Structured Finance Cashflow Transactions Moody's Methodology" a counterparty can enter into a hedge transaction with an SPV and continue to participate in that transaction without collateralizing its obligations so long as it maintains a long-term senior unsecured rating of at least A2. When (not if) Titlos is downgraded again, and its rating drops below the A2 collateralization threshold, look for AIG's margin call driven liquidity crisis escalation from the fall of 2008 to spread to Greece. And that's not all. The Titlos SPV itself may be null and void should the rating of the National Bank of Greece, as the Hedge Provider, drop below a "relevant rating" as defined in the hedge agreement. Should Greece then be forced, at Titlos' option, to unwind the swap agreement, and be forced to cash out to the tune of €5.4 billion (net of the 107.54 issuance price), look for all hell to break loose.

Frontrunning: February 15

• More bad news for Goldman - Greek Probe Uncovers ‘Long-Term Damage’ From Swaps Agreements (Bloomberg)
• Goldman goes rogue - special European audit to follow (Baseline Scenario)
• Europe's finance ministers face pressure over Greece (Bloomberg, BankingNews.gr)
• Looming problem of local debt in China - $1.6 trillion and rising (Chinese Politics, h/t Bruce)
• Mark Pittman remembrance: Battle over the bailout (NYT)
• Charges in web video bring unusual rebuttal from FDIC (NYT)
• Charlie Gasparino leaving CNBC for Fox Business News (TVNewser)