BWICs are Bwack As Funds Resume Dismantling Themselves
In a first for 2009, a $200 million loan BWIC was distributed earlier this week, indicating the deleveraging of hedge funds' credit books is far from over. In late 2008 BWIC lists (Bids Wanted in Competition) were all the rage, as banks and prime brokerages were freezing collateral pools of funds that had gone under or were in the process of doing so, and selling the component holdings one piece at a time to the highest bidder, which would usually be a substantial discount to market price. The mere threat of BWIC was enough to keep loan prices very low since no manager wanted to buy a name outright in the market, as the very next day he or she might be able to pick it off a BWIC firesale. Despite the huge volume of notional marketed in BWIC (according to some estimates over $20 billion of loan in Q4 alone), the bids many agent banks received were so low they decided to keep the loans on their own balance sheets instead of getting even less pennies on the dollar for their collapsed prime brokeree.