Thursday, January 17, 2008

SIVs don’t rollover, they die

Bring on the fire sales ...This should be very bad news for banks that have sponsored these off balance sheet vehicles with funding guarantees...... If they want to avoid the fire sales they need strong balance sheets to shoulder the reintegration..... Ask Citigroup ,IKB , Sachsen LB & Co ....... Once again a big hat tip to FT Alpahville ( see Blogroll )

Notverkäufe ohne Ende..... Das sollte besonders für die Banken unangenehm werden die gr´ßzügig Finanzierungsgarantien für diese Vehikel ausserhalb der Bilanz gegeben haben. Um einen Notverkauf zu verhindern hilft nur noch diese Papiere in die eigenen Bilanzen zu nehmen...... Fraglich ob alle Bilanzen stark genug siind um das zu schultern.....Fragt mal bei der Citigroup, IKB , Sachsen LB usw nach .....Einmal mehr ein dickes Lob an FT Alphaville ( siehe Blogroll)

SIVs don’t rollover, they die FT Alphaville

A quick update on the troubled SIV sector.

The average NAV (net asset value - a ratio of asset-worth to notes after leverage) for SIVs is now hovering just above the 50 per cent mark. According to Moody’s:

A vehicle’s net asset value of capital (NAV) is computed as the difference between the market value of its asset portfolio and the notional outstanding of its senior liabilities, expressed as a percentage of paid-in capital. NAV evolution since 2002 is shown in Chart 2. Sector NAV was above par for most of this period, falling below par in early August 2007 and then declining precipitously to 53% on November 30.


An average NAV that low is very worrying - since in generic SIV structuring terms, a fall below 50 per cent triggers a mandatory and immediate liquidation of the portfolio. Most SIVs are already in defeasance - having broken their “early warning” triggers (NAV at 75 per cent, for example). Moody’s again:

NAVs vary from SIV to SIV primarily as a function of portfolio composition. While SIVs and SIV-lites with relatively large concentrations of Non-Prime US RMBS and ABS CDOs show NAVs below 50%, vehicles with no subprime or ABS CDO exposures have NAVs that are closer to 77% as shown in Table 3. The ongoing liquidity crisis has however demonstrated that NAVs can be affected by spread widening in sectors that are not directly related to US subprime mortgages; thus, vehicles with currently high NAVs may also see sharp declines as contagion spreads across different segments of the credit markets.

(It’s disturbing to note that Moody’s are expecting contagion to spread with some certainty.)

> :-)!

For some SIVs, even a NAV at 53 per cent looks attractive (again via Moody’s):

Today’s rating action is prompted by the decline of Duke Funding’s capital net asset value from 21% on November 23rd 2007 to below zero on January 11th 2008.

This followed the declaration of an Event of Default by Duke Funding on December 6th, 2007. As a consequence of both the NAV decline and the occurrence of an Event of Default, one of the counterparties to the repurchase agreements, holding 8% of the portfolio, has exercised its right to liquidate assets. The remaining four counterparties, holding 92% of the portfolio, have agreed to forebear such liquidation rights on a temporary basis.

We’re now looking at a swift - and potentially market wide - liquidation of SIV portfolios. Possibly along Duke Funding lines. Low NAVs coupled with a spike in maturing SIV debt this January will likely make SIV sponsors - mostly banks - cave into the inevitable and call time. Banks simply can’t afford to keep on rolling-over SIV debt.

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2 Comments:

Anonymous eh said...

For some SIVs, even a NAV at 53 per cent looks attractive (again via Moody’s):...

They mean to the seller, I guess. Written with some irony, but without Schadenfreude, I assume.

Perhaps a realistic post.

3:13 AM  
Blogger jmf said...

Moin Eh,

"Written with some irony, but without Schadenfreude, I assume."

That´s the way i look at it. Thanks for the great link.

The guy is sounding realistic and i agree with lot´s he has to say.

Especially this sentence...

"Before I go, I must confess that I made the mistake this afternoon of turning on the TV"

3:23 AM  

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