• Bruce Krasting
    12/18/2014 - 21:42
      The one thing that Jordan can't do in this war is appear to be weak.

Secured Debt

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The Scariest Number Revealed Today: $1.114 Trillion In Eurozone Bad Debt





As we previously reported, the ECB's latest stress test was once again patently flawed from the start. Why? Because as we noted earlier, in its most draconian, "adverse" scenario, the ECB simply refused to contemplate the possibility of deflation. And here's why. Buried deep in the report, on page 75 of 178, is the following revelation which contains in it the scariest number presented to the public today.

 
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The Ebola Epidemic Silver-Lining: IMF Bailouts For Everyone





Never waste a good crisis. While we already knew a major reason for The West chasing into Africa was to leverage its relatively low credit levels as the last bastion of Keynesian-stimulus-hope in the world (estimated at between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral). And so it is little surprise that, as The WSJ reports, The International Monetary Fund on Thursday warned the West African Ebola epidemic requires a "large scale" global intervention to control a crisis that is ravaging economies in the region. All three major Ebola-suffering countries were already in bailout programs ($200mm loan in 2012 for Guinea, $100mm loan for Sierra Leone, and $80mm credit facility for Liberia) but with the "world community taking forever to respond," The IMF is happy to step in and secure some assets / lend over $100mm more to each nation to fill financing gaps.

 
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Stock Buyback Shocker: Companies Using Secured Bank Loans To Repurchase Stock





"US lending to businesses is reaching record levels but banks are privately warning that the activity should not be seen as evidence of an economic recovery." And the stunner: "Much of the corporate lending is going to fund payouts to shareholders, finance acquisitions and fuel the domestic energy boom, bankers say, rather than to support companies’ organic growth."

 
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The Battle For Africa: Chinese Investments Vs US Military





We have been vociferously following the 'battle for Africa' - the last untapped Keynesian credit growth economic region of the world - for a few years. One common theme has emerged China and the US are aggressively chasing down 'assets' - especially in the equatorial region. However, as the following two charts indicate, the two nations are engaged in very difference tactics for that 'takeover' - China's investment versus US brute force and military intimidation (and fake vaccination programs).

 
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S&P Junks Puerto Rico On Liquidity Concerns, Warns About $1 Billion Collateral Call - Full Note





Following the evaluation of liquidity needs (and availability) for the Commonwealth of Puerto Rico, S&P has decided that "it doesn't warrant an investment-grade rating":

  • PUERTO RICO GO RATING CUT TO JUNK BY S&P, MAY BE CUT FURTHER
  • GOVT. DEVELOPMENT BANK FOR PUERTO RICO CUT TO BB FROM BBB-:S&P
  • PUERTO RICO GO RATING LOWERED TO 'BB+': S&P
  • PUERTO RICO REMAINS ON WATCH NEGATIVE FROM S&P

Both the G.O.s and the Development Bank have been cut. Note that 70% of muni mutual funds own this - and it is unclear if a junk rating forces (by mandate) funds to cover. Worst of all, S&P warns Puerto Rico could now face a $1 billion collateral call on short-term debt - the same waterfall collateral cascade that took down AIG.

 
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Guest Post: Africa - China And Japan's Next Battleground?





We have long held that Africa is a crucial region of the world in the near future because there is no more incremental debt capacity at any level: sovereign, household, financial or corporate - in any other region.  As tensions between China and Japan multiply, there is an increasing battle for influence in other states. While China and Japan may look like they’re competing in Africa, the two countries are actually playing different games. Whereas Abe seems content to have Japanese businesses make profits, China is actively pursuing soft power on the continent.

 
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The US Is Not Switzerland: Weighs Sanctions Against South Sudan





Despite telling us just yesterday that it would not take sides in the tensions in South Sudan...

*U.S. NOT TAKING SIDES IN S SUDAN: PSAKI

the US government is on the verge of deciding to... take sides. As Reuters reports, the United States is weighing targeted sanctions against South Sudan due to its leaders' failure to take steps to end a crisis that has brought the world's youngest nation to the brink of civil war. Africa, as we have discussed at length, remains the only region on earth with incremental debt capacity (and therefore growth in a Keynesian world) and so it is no surprise the US wants to get involved in yet another conflict.

 
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Goldman Goes Medieval On JCPenney: Shorts Bonds; Slams Liquidity; Expects Default Risk Surge





Back in April, in a desperate scramble to raise liquidity courtesy of a hail mary Goldman syndicated term loan, we penned "Confused By What Is Going On At JCP? Here's The Pro Forma Cap Table And The Cliff Notes", where in addition to the obvious - that this is merely buying a few months for the melting icecube company which with every passing day is closer to a Chapter 11 (or 7) bankruptcy filing - we also laid out that what Goldman was doing was merely positioning itself to be at the top of the company's capital structure with a super secured and overcollateralized credit facility, through what is effectively a pre-petition DIP...  As it turns out we only had to wait for five months before the same Goldman that raised the company's emergency liquidity term loan turned around and launched a vicious attack on the same company that paid it millions in dollars in underwriting fees. Specifically, what Goldman just did is write a report (perhaps one of the best bearish cross-asset investment theses we have seen to come out of the firm in a long time) in which it laid out, in a lucid and compelling manner, why JCP is doomed. The report is titled appropriately enough: "Initiate on JCP with Underperform: Looking for cash in the name"... and not finding it.

 
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JPMorgan Brings The Second Public Coming Of Chrysler





Four years after it filed for Chapter 11 bankruptcy protection, and was purchased from the depths of bankruptcy court hell by Fiat S.p.A., the circle (jerk) is complete, and thanks to lead underwriter JPM, the second coming of Chrysler, this time for sale to a whole new batch of gullible ROI chasers, is now a fact with the S-1 statement filing moments ago, in which the only cash transfer will be from the VEBA Trust to new shareholders and no new cash will go to the actual company. In other words, the UAW is selling to the general public.

 
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Nigerian Scam Emails To Get Facelift Thanks To Goldman, UBS, Credit Suisse





Nigeria, Africa's top oil-producing nation, has a problem - too much money in its sovereign wealth fund and no idea what to do with it. Have no fear though, for as Reuters reports, Goldman Sachs, UBS, and Credit Suisse have kindly responded (to emails from long-lost cousins?) and will be allowed to managed 20% of Nigeria's $1 billion fund (which is meant to cushion against oil price shocks - good timing?) This should come as no surprise to Zero Hedge readers as we have been discussing Africa as the only place left in the world capable of incremental debt capacity (and therefore growth). There are consequences (the boom-bust cycle) to this politically-motivated capital inflow; but for now the Nigerian Sovereign Investment Authority (NSIA) states (in a reassuring manner) that the banks will invest "the fund's assets conservatively, with capital preservation in nominal terms being of primary importance," which 'nominally' fits with UBS managing their Treasury exposure and GS and CS their corporate debt exposures.

 
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The Plight Of Europe's Banking Sector, Its €650 Billion State Guarantee, And The "Urgent Need" To Recapitalize





Since the topic of quantifying how big the sovereign assistance to assorted banks - both in Europe and the US (which Bloomberg calculated at $83 billion per year) - has become a daily talking point, we are happy to read that Harald Benink and Harry Huizinga have reached the same conclusion as us in their VOX analysis, and further have shown that in Europe the implicit banking sector guarantee by the state is a whopping €650 billion. "Europe has postponed the recapitalisation of its banking sector for far too long. And, without such a recapitalisation, the danger is that economic stagnation will continue for a long period, thereby putting Europe on a course towards Japanese-style inertia and the proliferation of zombie banks... Banks are already saddled with ample unrecognised losses on their assets, estimated by many observers to be at least several hundreds of billions of euros and mirrored by low share price valuations, and an additional loss of their present funding advantage will be crippling."

 
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Detroit To Default Today, "Shared-Sacrifice" To Follow





And so the next casualty of the inevitable municipal collapse appears, which is, as expected, that one-time symbol of all that was right with a (once upon a time) manufacturing America, having since been replaced with the anti-symbol of all that is broken: Detroit. DETROIT BEGINS MORATORIUM ON ALL DEBT SERVICE PAYMENTS FOR UNSECURED FUNDED DEBT; DETROIT TO DEFAULT ON CERTIFICATES OF PARTICIPATION DUE TODAY. And, true to from in the New Normal America, where the "fairness doctrine" rules supreme under Big Brother's watchful eye, the premise of the upcoming glorious recovery is a well-known one: "the shared-sacrifice." To wit: "The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring.  Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City." The punchline: "Detroit's road to recovery begins today"... By defaulting.

 
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Wholesales Sales Drop By Most Since March 2009; Relentless Inventory Accumulation Continues





The relentless warehousing of wholesale inventories continues, even if the "any minute now" gusher of wholesale sales continues to be pushed back into the indefinite future. Sure enough, the March data showed that wholesale sales disappointed, and instead of growing 1.5%, declined by -1.6%, below expectations of a 0.1% rise. This was the biggest drop in sales since March of 2009: another nail in the coffin of any recovery dreams. That this happened even as inventories increased by more than the expected 0.3%, or 0.4% up from the previos decline of -0.4%, shows that indeed the end-demand weakness has been quite widespread. Logically, the Inventory-to-Sales ratio rose to 1.21, up from the 1.17 a year ago, and the highest also since 2009. Sooner or later all this pent up inventory will have to be cleared, resulting in even more dumpin, price reductions and margin deterioration in a retail world in which the bottom line is more elusive now than it has ever been: just ask Amazon.

 
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First Greek Bailout Snag - Local Bankers Refuse To "Voluntarily" Participate In Critical Bond Buyback





Those who have been following the recent developments over the Greek distressed debt buyback, which in any normal universe would have been considered an event of default but certainly not in "special cases" such as Greece where the country's official default would start the Lehman-like domino collapse as apparently getting a 70 cent haircut in 8 months is a "voluntary" event, have been quite confused by the internal dynamics. On one hand the sole beneficiary of the transaction are those hedge funds who bought the GGB2 bonds when they tanked to lows just barely in the double digits as a % of par; on the other, there is absolutely no benefit to the Greek people as a result of this sub-par prepayment, as the only fund flow benefits hit the bondholders (and it is up to Greece to figure out how to grow its GDP by over 4% per year over the next 8 years). Then let's not forget that nobody has any clue yet where the funding for said buyback will come from. And finally, as Kathimerini just reported, we learn that one group that has just vocally declared against the buy back are the very people who are supposed to be benefiting from the Greek bailout: i.e., the country's bankers.

 
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