Archive - Apr 2009

That is the result of the stress test in the just published S&P "Scenario Analysis: Standard & Poor's Expcets the Downgrade Risk To Be High For Recent-Vintage U.S. CMBS Transactions."

Here is what the rating agency had to say about the methodology and summary of their analysis:

Due to a flood at Paper Street HQ, numerous files were destroyed last week, among them the interim weekly CDS report. Unfortunately, this means we need to restart the CDS tracking from scratch this week. As there is no prior week reference just take our word for what has been happening: not a whole lot in credit land.

Contracts? We don't acknowledge no steenkin' contracts. The Alabama state school construction authority has declined to make a payment due to JP Morgan under a derivatives deal until a federal court rules on a state lawsuit seeking to have the contract thrown out. Alabama finance director has said he won't make or accept any payment under the swap deal: the first contractual payment is due May 1.

Fed says TALF loan demand fell to $1.7B from $4.7B last month. Recall that the WSJ earlier reported that only two issuers had put together about $1.4B of TALF-eligible bonds heading into today's 17:00 ET deadline, significantly less than the $8.2B put together ahead of the March funding. The article noted that tedious paperwork, fear of legislative interference and curbs on hiring foreign workers have discouraged many firms from participating in the TALF.

Spreads were mixed in the US today with IG worse, HVOL wider, ExHVOL better, XO stronger, and HY rallying, although moves were generally minimal with a late day rally in IG the only bright spot. Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL outperformed pushing the skew wider, XO underperformed but compressed the skew, and HY outperformed but narrowed the skew.

I am Jack's total lack of surprise: ProLogis has announced it will monetize the recent rally in REITs and will issue 115 million shares (and another 17.25 million green shoe), using the proceeds again to pay down its credit facility. 132.25 million total new shares on 267.6 million existing shares: the dilution is, in the parlance of our times, solid...

Ironically the company missed on both if someone actually bothers to read the press release and stick to facts.

Some rhetoric from Klaus Kleinfeld, discussing such philosophical topics as "population megatrends and environmental stewardship."

Or so says ING, predicting a 40% rise in HY European CDS. ING is recommending (and likely axed in) a trade where accounts buy Euro HY CDS and sell IG CDS.

Good news: consumers are deleveraging
Bad news: consumers are really deleveraging

The Fed's G.19 release indicates a February drop of $7.5 billion in total consumer credit, $4.5 billion more than consensus. The bulk of the monthly change was due to a significant reduction in revolving lines of credit: almost $7.8 billion or nearly a 10% change, while non-revolving credit demonstrated a slight increase.

Good news: consumers are deleveraging
Bad news: consumers are really deleveraging

The Fed's G.19 release indicates a February drop of $7.5 billion in total consumer credit, $4.5 billion more than consensus. The bulk of the monthly change was due to a significant reduction in revolving lines of credit: almost $7.8 billion or nearly a 10% change, while non-revolving credit demonstrated a slight increase.

The major outlier in IG CDS over the past two days has been a name that Zero Hedge frequent readers are all too familiar with. The 5 year CDS of National Rural Utilities Cooperative Finance Corp has been on a 100 bps widening trajectory with no available news. Several traders have voiced their concern over the contents of the upcoming earnings call, which the company has postponed from its original date this week, to some time next week.

As Zero Hedge reported first, strange things happened in January and February when AIG was allegedly unwinding CDS trades with its trading counterparties. As we reported, the taxpayer funded loss that AIG presumably experienced on wholesale CDS unwinds may have well been the reason for the banks' reported trading profitability in the first 2 months of the year.

Zero Hedge believes it is a civic duty to represent the total melange of assorted concepts and alphabet soups in the ongoing debacle that is the Bail Out in a comprehensible and easily understandable context as the decisions the administration is making will have generational consequences. Therefore, I am presenting a view of the players, the mechanisms and the core of the Bail Out problem in a way that will be much easier to be comprehended by most interested parties. The conclusion is frightening.

The Players

• RBS to cut 9,000 jobs worldwide (Bloomberg)
• Toxic assets are priced correctly claim Harvard and Princeton professors (Clusterstock)
• Commodities may gain 20% by October, U.S.