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The Next Crisis – Mark your calendar
The Next Crisis – Mark you calendar
The date will be on or about September 30th. The issue will be the need to pass a Continuing Resolution by the House.
For more than 850 days the US has gone without a budget. The House passed one not long ago; the Senate tabled it. The Administration has not offered up one either. The absence of an approved budget means that the only way the country can continue to operate is through a series of temporary extensions.
The last time we went through a vote on a continuing resolution was just four months ago. That fight went down to the wire. At the time it was 50-50 that the government would be forced to shut down. In the end a deal was reached to extend things to the end of this fiscal year. That happens to be just six weeks from today.
.
The fight back in April was the opening salvo of the war between Democrats and Republicans. I think this was the first definitive evidence that our government was so deeply divided that it had become dysfunctional.
It was the debt ceiling catastrophe that drove S&P to cut the US credit rating. The seeds for that ratings cut came from the Continuing Resolution debacle.
To get a new Resolution through the house the Democrats and the WH will have to make concessions. We’ve seen where this takes us. Crisis.
.
.
On AAA’s
We lost ours a week ago. I’m not sure how important that was for the violent markets this week. It played into the mix of crazy things that happened.
A new AAA was created this week. A country rises to this lofty rank? No, that’s not going to happen. One of the strong global companies gets a higher rating? No, that’s not likely either. Is this a name we all know? No, not unless you trade CRE CDOs for a living. This AAA goes by the moniker of:
COMM 2011-THL
.
This is a Commercial Real Estate Collateralized Debt Obligation. (Remember those ugly things?) The total deal is $685 million. The security for this borrowing? $685mm of mortgages on 168 hotel properties in 33 states. (Note: 100% leverage, O% equity). The average loan size behind the deal is $4mm. This means we are not talking big properties. I call this the “Red Roof” deal.
The CDO is structured with (get this) six tranches. The bottom of the credit pile is therefore just swill. The most subordinate piece is a $110mm. Somehow this junk managed to get a BB from Fitch.
The most senior tranche came to $350mm. (Note: This does not even have 2X coverage). Fitch took a quick look at this and gave it AAA.
My guess looking at some of the details is that the senior tranche has a very good chance of getting their money back. But this is by no means a sure thing. It was just three years ago when we last had deals like this. The vast majority of those AAA's got smoked. (Note: Only “Sophisticated” investors can participate in this deal)
I’m scratching my head. If a bond secured by a bunch of so-so hotels can get a AAA just what the hell does a AAA mean?
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The moment you hear even a whisper that they are coming for your guns, your silver and your gold, waste no time.
THAT IS THE TRIGGER FOR THE NEW REVOLUTION.
DOWN WITH BANKERS, POLITICIANS AND BUREAUCRATS
Only AAA I trust is AAA Locksmith
AAA is tantamount to As An Ass. Here you go.
Please kindly recuse yourself if you take umbrage on the acronym AAA.
Farmland...not rated......gold...not rated.....silver...not rated.....If you need some third party to rate your investment options you are too disconnected and should not invest IMHO...btw Farmland is the only commodity I know of that can produce countless commodities
"just what the hell does a AAA mean?"
Umm.. The American Automobile Association?
They rate hotels.
another annoying asshole
apologies appropriately appreciated
american anarchist association
ankles and assholes
angst and anguish
anger and antagonism
another artful analogy.............
Abdominal aortic aneurysm
The IB's pay to have their securitized shit rated by the ratings agencies. You see, that's been the problem of the sovereign nations. JUST PAY S&P, MOODY's, FITCH like everyone else does! And this downgrade nightmare will go right away.
"If a bond secured by a bunch of so-so hotels can get a AAA just what the hell does a AAA mean?"
Whatever its worth, apparently it is more than the US
Which agency gave this rating? Do you smell a...rat?
If so you are in the same company as Martin Armstrong.
Fitch. But I'd liked to know who has packaged the offering. (And whether John Paulson had any sway over the choice of hotels...)
Looks like Moody's have also given it a quick glance, although I can't find their ratings of it. No word from S&P - maybe they've been a bit busy recently.
New York, August 01, 2011 -- Moody's Investors Service has assigned definitive ratings to six class of CMBS securities, issued by COMM 2011-THL, Commercial Mortgage Pass-Through Certificates.
US$350M Cl. A Certificate, Definitive Rating Assigned Aaa (sf)
US$75M Cl. B Certificate, Definitive Rating Assigned Aa2 (sf)
US$55M Cl. C Certificate, Definitive Rating Assigned A2 (sf)
US$45M Cl. D Certificate, Definitive Rating Assigned Baa1 (sf)
US$50M Cl. E Certificate, Definitive Rating Assigned Baa3 (sf)
US$110M Cl. F Certificate, Definitive Rating Assigned Ba3 (sf)
RATINGS RATIONALE
The Certificates are collateralized by one fixed rate loan secured by 168 properties. The ratings are based on the collateral and the structure of the transaction.
Moody's CMBS ratings methodology combines both commercial real estate and structured finance analysis. Based on commercial real estate analysis, Moody's determines the credit quality of a mortgage loan and calculates an expected loss on a loan specific basis. Under structured finance, the credit enhancement for each certificate typically depends on the expected frequency, severity, and timing of future losses. Moody's also considers a range of qualitative issues as well as the transaction's structural and legal aspects.
Moody's rating approach for securities backed by a single loan compares the credit risk inherent in the underlying properties with the credit protection offered by the structure. The structure's credit enhancement is quantified by the maximum deterioration in property value that the securities are able to withstand under various stress scenarios without causing an increase in the expected loss for various rating levels. In assigning single borrower ratings, Moody's also considers a range of qualitative issues as well as the transaction's structural and legal aspects.
The credit risk of the loan is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by the loan's debt service coverage ratio (DSCR), and 2) Moody's assessment of the severity of loss upon a default, which is largely driven by the loan's loan to value (LTV) ratio.
Moody's Trust LTV Ratio of 76.2% is in-line with other fixed-rate multiple-property loans which have previously been assigned a credit estimate of Ba3 by Moody's. Moody's Total LTV ratio (inclusive of subordinated mezzanine debt) of 108.5% is also considered when analyzing various stress scenarios for the rated debt.
The Moody's Trust Actual DSCR of 3.45X and Stressed DSCR is 1.59X.
If the DSCR industry standard is 1.2, even the stressed DSCR is comfortably above it.
While I would never want a debt payment that only exceeded my net revenue by .59, if a bank is willing to make the loan at 1.2, then how can junk status apply to anything that is above 1.2?
If I own the business I can pay myself a salary and apply it to the gross, so the net, even in the case of a B&B hotel, isn't all that concerning.
Tks Ghosty. I'm getting lazy. It's been a long week........
The good ole "you have to rate it to find out what's in it" ploy.
ah, no biggie. Bail outs are a dime a dozen