Archive - Mar 11, 2009 - Story

Moody's shredder is on max today. The rating agency cut Developers Diversified Realty's unsecured rating to Baa3, the lowest investment grade rating, and its preferred stock rating to Ba1, or junk, and has kept the company on negative outlook. Expect a comparable cut from S&P any minute which last week put virtually the entire REIT space on downgrade watch.

The jist of Moody's report:

If anyone wants empirical proof of the concept Zero Hedge brought up two weeks ago that the "creeping equitiziation" higher and higher into the capital structure of the sick banks is becoming a major issue for existing bondholders, one just needs to look at the price of Citi 7.25% Sub Notes due October 2010 (70) and Bank of America's 7.4% Senior Sub Debt due January 2011 (85).

If anyone wants empirical proof of the concept Zero Hedge brought up two weeks ago that the "creeping equitiziation" higher and higher into the capital structure of the sick banks is becoming a major issue for existing bondholders, one just needs to look at the price of Citi 7.25% Sub Notes due October 2010 (70) and Bank of America's 7.4% Senior Sub Debt due January 2011 (85).

Or not... The company reported a record loss today of $23.9 billion, said it will need to draw another $30.8 billion on its federal loan, and has announced its liabilities exceed its assets, as the fair value of its net assets declined by $120 billion. Among other things, FRE announces its disclosure/procedures are not effective, had 4 material weaknesses in internal control, and sees a high provision for credit losses in 2009...

In shattering many an LBO investor's dreams, who had been waiting and waiting for Baugur to buy luxury retailer Saks (another company that could make headlines here in the not too distant future), the Icelandic retail roll-up will not be LBOing anyone any time soon, as today it finally caved and filed for bankruptcy. Baugur, whose investments include London toy-store Hamley's and a partial stake in Debenhams and Saks, has disclosed debts which exceed its assets by $1.3 billion.

Another great idea from Laszlo Birinyi who wants to get rid of all the companies that people were clamoring to be added into the Dow at the last rotation. Laszlo is all about removing Bank Of Countrywide Lynch, GE, Alcoa and GM and adding the companies that have not been hammered (yet) such as Chubb, Visa, Newmont, and Schlumberger. Of course, in two years when these four (and who knows how many others) get to the point where Citi's whopping 20% move only budged 5 points in the DJ50, Laszlo will pull some other big cap companies to replace those.

And the rating agency continues its review. Seems Moody's is mostly worried about the Wyeth deal (downgrade to A1 certainty upon closure) and upcoming patent expirations:

Moody's affirmed Pfizer's Prime-1 short-term rating. This rating action reflects some deterioration in Pfizer's stand-alone credit quality based primarily on the approaching Lipitor patent expiration. Moody's had already signaled this as a credit risk factor prior to the Wyeth merger announcement (discussed below), with a negative outlook on Pfizer's ratings since October 19, 2007.

And people thought Jerome Kerviel's blow up was spectacular. In an interesting piece out on abcnews, more light is being shed on AIG's small financial products London office which even AIG now acknowledges was ground zero for roughly $500 billion in losses, as well as the person who ran it, Joseph Cassano.

And people thought Jerome Kerviel's blow up was spectacular. In an interesting piece out on abcnews, more light is being shed on AIG's small financial products London office which even AIG now acknowledges was ground zero for roughly $500 billion in losses, as well as the person who ran it, Joseph Cassano.

Yesterday, smallish Pennsylvania-based E&P company Penn Virginia (PVA) provided a financial liquidity update hoping to sway investor concerns arising from an increasingly cloudier liquidity picture. Judging by today's stock action, the company failed.

Lately more and more investors have been asking the same question: why are traditional metrics of market stress and credit supply not indicative of what the market is doing? In particular, they look at the VIX index as well as 3 month LIBOR, which, last time around exploded when the market reached its post-Lehman lows in November. Why should it be different now, when the market reached a 12 year low last week and financial company CDS levels hit all time wides, yet both the VIX and LIBOR have barely budged?

In prepared testimony to the House Oversight and Government Reform panel, TARP head honcho Neel Kashkari says he is sorry to have had to steal from taxpayers to save his appointee's former employer, but says it just had to happen otherwise, said employer would likely have to shutter (j/k) and taxpayers would be even worse off than if they were not all doomed to hyperinflation in the next 2-10 years.

The carnage in homebuilders continues. Hovnainan posted a $2.29 loss, substantially worse than the consensus estimate of -$1.56 after "joblessness climbed and prospective buyers waited for prices to quit falling." Paul Puryear, director of real estate research at Raymond James had some additional choice words: "A couple of builders are on the critical list, Hovnanian being one. The No. 1 driver of household formation is job growth and job growth is negative.

Looks like Zero Hedge has at least one reader. After the NRUC story was published (and contrary to some amusing opinions, Zero Hedge is not a hedge fund nor is talking its book... we would love that to be the case seeing the reaction in NRUC CDS plus the name Zero Hedged Capital sounds oddly attractive), first Goldman picked up on it, now Gimme Creddit seems to be chiming in.

• Hedge fund investors pull $11 billion in February (Bloomberg)
• Bankers rushing to the exits (WSJ)
• Greenspan refuses to take blame for housing bubble (Reuters)
• UBS has $18 billion loss for 2008, cautious on outlook (Bloomberg)