Wednesday, February 20, 2008

Bring On The Fire Sales....Whistlejacket one day from MTN default

Finally..... Somebody has to start..... Maybe someone should have told them that it isn´t a good strategy to fund long term maturities with short term debt..... If you combine this with leverage and often enough "questionable" assets you have a recipe for disaster.....

Hat ja auch lange genug gedauert..... Einer muß ja den Anfang machen..... Evtl. hätte denen mal einer sagen sollen das es selten gut geht langlaufende Anlagen mit kurzfristiegn Schulden zu finanzieren....... Wenn man das ganze dann auch noch mit einem zusätzlichen Hebel und häufig genug "fragwürdigen" Papieren mixt bekommt man unweigerlich einne wenig erfolgversprechende Mixtur ( fragt nach bei bei der IKB, West LB, Bayern LB, Sachen LB etc ).....

FT Alphaville So either they couldn’t make it work, or in the end they didn’t want to. Nine days ago, Standard Chartered withdrew the liquidity support promised (conditionally) to its $7bn Whistlejacket SIV, after the vehicle breached its net asset value trigger, and appointed a receiver, Deloitte.

The U-turn by the bank raised the prospect of the kind of rapid firesale - and subsequent contagion through spread-widening across the SIV sector - that banks such as HSBC and Citi have moved to avoid by taking their respective vehicles onto their balance sheets.

On Wednesday, though, Standard Chartered withdrew the proposals it had made to Deloitte to help avoid a wind down of Whistlejacket and expressed its disappointment that it had been “unable to find a viable solution to ensure flexibility for Whistlejacket due to these changes in circumstances.”

This is as a result of a number of factors, including the pace of continuing deterioration in the market for certain asset classes and the impracticality of completing any proposal within the confines of the receivership as it has evolved.
Oh dear. This looks doubly bad. Whistlejacket tripped its trigger because the value of its assets fell below 95 per cent of par - or 50 per cent of the face value of the notes after leverage - triggering automatic receivership and liquidation.
Standard Chartered was thought to have made two offers to Deloitte. Firstly that it could buy Whistlejacket’s assets as they mature and transfer them to a separate vehicle, which it would manage. That though is rather the status quo - and as asset values continue to fall would presumably merely transfer the problem to a new structured vehicle.

> BRILLIANT.......

The second option was that it could buy all of Whistlejacket’s assets at current market prices, which would allow investors to realise what remains of their investments and get them more than in the event of a firesale, but would presumably leave Standard Chartered entirely exposed to the downside of those assets going forwards.

Either way, continuing rapid falls in asset values was going to prove problematic. Moody’s latest update on the SIV sector in January showed how average NAVs had fallen precipitously, the average reaching 52.6 per cent last November. The deterioration has continued apace since then.

While Deloitte say that a firesale is not an option (”absolutely categorically no need“), and that is still seeking other solutions, time is getting tight. The receiver elected last Friday not to pay the medium term notes maturing that day. S&P lowered its rating on the notes to CCC-, and its issuer rating on Whistlejacket, as a result - and said that as the notes have a three-day grace period payment default will take place on Thursday 21. Or tomorrow.

> It looks like the statement via Ft Alphaville SIVs don’t rollover, they die isn´t far off the mark....... And the chart might give an impression what still needs to be refinanced......

> Es sieht so aus als wenn die Aussage von Ft AlphavilleSIVs don’t rollover, they die das ganze recht treffend zusammenfaßt.....Der nachfolgende Chart gibt einen ganz nettenn Überblick über die kommende Refinanzierungswelle die mehr denn je in den Sternen steht......

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Anonymous Barley said...

I wonder if BMO in Canada will make the same about face?

"Canada’s BMO Financial will provide up to US$12.2bn, or about 3 per cent of its assets, in liquidity support for two structured investment vehicles that it is seeking to wind down"

7:31 AM  
Anonymous Anonymous said...

Off topic, but interesting:
Hedge fund lawsuit against Pimco

8:34 AM  
Blogger jmf said...

Moin Barley,


They should better 100 percent sure that the assets are not toxic....

10:53 AM  
Blogger jmf said...

Moin Anon,

i expect a tsunami of lawsuits during the coming years.

Especially from failed hedge funds :-)

Lawers have the potential to replace real estate agents....

10:59 AM  
Blogger jmf said...

Dresdner offers support to K2 SIV

Another SIV bites the dust. Dresdner on Thursday became the latest bank to step in to prevent a firesale of assets by ponying up a liquidity line to its $18.8bn K2 structured investment vehicle.

The bank has succeeded in reducing the SIV’s size from $31.2bn last July - and Dresdner’s offer aims to allow an orderly sale of the SIV’s assets to “ensure the repayment of all senior debt of K2.”

This is a vehicle, let’s remember, that has no direct exposure to subprime or mid-prime backed securities, or to CDOs of ABS or MBS. The entire portfolio is investment grade rated, with over 90 per cent of the assets rated either triple or double A.

But SIVs don’t work - period. And K2 was among those whose junior notes were downgraded to junk last December when S&P admitted that the vehicles were unlikely to survive, hit by a double whammy of falling values of the structured assets in their portfolios and a dearth of investor demand for their short-dated paper.

The support extended to K2, a typically macho name for these vehicles that have proved so fragile, removes one large chunk of the remaining SIV sector. Merrill Lynch in January estimated that K2, along with 10 other SIVs, had $21bn of medium-term notes to repay before April.

12:30 AM  

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