Debt Pile Looming Over European Firms

I´ll bet that some will damm their debt financed aquisitions & stock buybacks ( for some "amusing" examples see "I Want My Buyback Back" ) ........ I assume that during the coming at least 2 years it won´t be the earnings that will dominate the stockprice .... It will be all about the balance sheet....... The management will be forced from a shareholder value oriented mood to "serve" their new masters aka the bondholders.......

Kann mir gut vostellen das einige inzwischen Ihre schuldenfinanzierten Übernahmewahn & die Aktienrückkäufe bereuen ( einige "amüsante" Beispiele gibt es hier zu bewundern "I Want My Buyback Back" ) ...... Bin mir ziemlich sicher das zumindest auf Sicht von 2 Jahren weniger die Gewinnsituation als die Bilanzqualität das beherrschende Thema der Aktienmärkte sein werden..... Das Management wird zukünftig nicht mehr die Aktionäre sondern die Bondholder in den Mittelpunkt Ihrer "Bemühungen" stellen......

> The trouble is getting even greater when you combine the graph with the spread charts via Mish

> Wie prekär die momentane Lage ist zeigt mehr als eindrucksvoll wenn man die o.g. Grafik mit den nachvolgenden Charts kombiniert Unternehmensanleihen auf Tauchstation via Zeitenwende/Mish

WSJ European companies, already in the middle of an economic downturn, face another uphill struggle as they seek to refinance $242.6 billion of maturing debt over the coming year, according to credit-ratings firm Standard & Poor's.

"Funding pressures in Europe have escalated sharply since September as stress in the global financial system accelerated," the report said.

According to the report, European companies will be forced to pay back or refinance $586.3 billion through 2011, with more than 40% of that debt coming due over the next year.

French nonfinancial corporate issuers account for the largest portion of debt to be refinanced, with 26%, followed closely by the U.K., Germany, Netherlands and Italy, which have a combined share of 79%.

No company rated below single-A has managed to access the bond market in recent months, offering little hope for companies further down the ratings scale

The report examined all debts rated by S&P including bank loans, notes and bonds.

>The banks will have to pray that the companies manage the refinancing of the debt... Otherwise they are forced to tapp corporate bank lines .....

> Die Banken dürften bereits jetzt anfangen zu beten das es möglich sein wird diese fälligen Anleihen zu refinanzieren...... Ansonsten bleibt den Firmen nichts anderes übrig als die bestehenden Kreditlinien der Banken anzuzapfen...... Sicher nicht der glücklichste Umstand wenn nahezu alle Banken dringend auf Ihre Kapitalstärke achten müssen......

Credit terms increasingly tied to risk FT Alphaville - US and European companies renewing short-term credit facilities are being forced to accept terms that link interest payments to their creditworthiness. In recent months, AT&T, Wal-Mart, Caterpillar, Halliburton, Nokia and Novartis have all renewed their short-term financing arrangements, including revolving credit facilities, and found that “relationship pricing” is no longer available. Instead,

companies are finding that banks - which had offered cheap loans to top corporate clients - now price these facilities based on measures of credit risk. In most cases, credit default swaps are being used.

The first deal for this new type of pricing for revolving loans, totalling an estimated $6,000bn worldwide, was done in April

Since then, such terms have become widely used. Banks hope this will discourage companies from tapping these credit lines unless they absolutely need to. Already, at least 20 such deals for 364-day revolving credit facilities – a type of overdraft for companies to ensure access to funds in case markets shut down – have been completed and at least as many are in the pipeline.

Update via Bloomberg Borse Dubai May Refinance $4.2 Billion of Loans at Higher Costs

Borse Dubai Ltd., the Gulf emirate's state-owned operator of exchanges, is in talks to refinance $4.2 billion of loans at interest rates tied to the price of credit- default swaps, raising the cost of the debt, said three bankers with knowledge of the transaction.

The new debt may pay interest of as much as 6 percentage points over the London interbank offered rate on loans for three years, said the bankers, who declined to be named because the negotiations are private. That compares with a margin of 1.1 percentage points on the existing loans, which were used to buy Sweden's OMX AB last year

Cover Story Indicator / Barry Ritholtz

once again a prominent cover story has marked the turning point ..... click on the headline to read the story from Barry Ritholtz.

here is the original BW story http://tinyurl.com/yvmze2 .

the real trigger will come when the risk premiums/spreads are starting to increase.... so far we have seen nothing yet....... i think it is safe to say that from the historic low levels there is only one way to go...the only question if the adjustment is orderly....... would be to good to be true......

einmal mehr könnte das BW cover einmal mehr den wendepunkt angezeigt haben..... bitte auf die überschrift klicken um die meinung von Barry Ritholtz zu diesem thema zu lesen.

hier der originalbericht von BW. http://tinyurl.com/yvmze2

der markt wird richtige probleme bekommen wenn die risikoaufschläge anfangen zu steigen. es ist eine ziemlich sichere wette das diese (z.zt. historische tiefs) nur eine richtung kennen werden. die frage ist letztendlich ob das ganze in geordneten bahnen abgeht....wäre fast zu schön um wahr zu sein.....

No Place to Hide / LBOs Attack Finance Company Bondholders

this sums it up........ dieser satz sagt alles zum aktuellen kaufwahn in sachen lbo´s

They had assumed that companies whose profits depend on investment-grade credit ratings couldn't afford to pile on debt.

think again......

May 22 (Bloomberg) -- Finance company bonds, the fastest- growing part of the corporate debt market, are no longer a haven from leveraged buyouts.

Bondholders were ambushed by last month's $25 billion takeover of SLM Corp., the student loan company known as Sallie Mae. They had assumed that companies whose profits depend on investment-grade credit ratings couldn't afford to pile on debt.

``The LBO risk factor is dramatically underpriced,'' said Greg Habeeb, a senior vice president at Calvert Asset Management Co. in Bethesda, Maryland, who manages $8 billion of bonds. ``We're not rushing to buy anything.''

Bonds sold by finance companies ranging from CIT Group Inc. to American Express Co. lost as much as $5 billion of their value since the Sallie Mae deal was announced on April 16, according to CreditSights Inc., a New York-based fixed-income research firm. The acquisition eliminated the last shelter for investors after $1.11 trillion of debt-fueled takeovers since the start of 2006.

Investors this month demanded an average 86 basis points more in yield than on Treasuries to hold the debt of finance companies, 14 basis points more than before the Sallie Mae buyout and the most since 2003, ....

Finance companies were considered immune to LBOs because they profit from the difference between their borrowing costs and the amount they charge on loans.

The increase in yield premiums is bigger than any other part of the investment-grade debt market...

Hardest Hit
The increase means it costs an extra $1.4 million in annual interest to sell $1 billion of debt. Spreads may widen another 20 to 30 basis points, Habeeb said.....

Sallie Mae's $750 million of 5.45 percent notes due in 2011 tumbled 4 cents on the dollar to 96 cents on April 16 when New York-based private-equity firm J.C. Flowers & Co. said it would buy the largest U.S. provider of student loans, according to Trace, the bond-price reporting system of the NASD. The decline pushed the yield on the notes to 6.5 percent from 5.5 percent.

Biggest Holders
LBOs typically wreck returns for bondholders because buyers borrow about two-thirds of the company's purchase price, causing the value of existing debt and credit ratings to fall. Reston, Virginia-based Sallie Mae's A2 rating was put on watch for downgrade by Moody's, as was its A rating at S&P.....

LBO Sting
``Private equity will always swarm,'' said Kiesel. ``You can't keep the bees out of the tent. We had a hole in the screen and the bees got in, and they stung.''

More investors than ever are being hurt by finance company bonds. The industry represents 40 percent of the $2 trillion of corporate bonds outstanding, up from 20 percent in 1990

Finance companies sold $220 billion of debt through April, up 30 percent from the same period last year. Bond sales by industrial companies fell 3 percent to $65.5 billion, while utilities issued $5.7 billion, a decline of 17 percent, data compiled by Morgan Stanley show. Finance companies are selling about 75 percent of all bonds, the firm says.

`Middle of the Storm'
``Investors were looking for a safe harbor and the irony is that they put themselves in the middle of the storm,'' ....

CIT bond spreads widened 29 basis points in the past year to 99 basis points, according to Trace. The largest independent commercial finance company in the U.S. had $58.3 billion in debt as of March 31. Yield premiums for investment-grade companies have increased 4 basis points.....

New Twist
Yield premiums have increased for all the companies. Those of American Express, the fourth-biggest credit-card issuer, rose 10 basis points on average in the past year to 50 basis points. Spokesman Robert Glick declined to comment.

Financial firms such as Salle Mae can withstand additional leverage and get by with lower credit ratings because of the growth of the market for bonds backed by assets such as loans and other receivables, according to CreditSights.

Merrill's broadest asset-backed index contains $1.2 trillion in bonds, up from $253 billion in 2002. The average rating is AAA, and the yield is 5.74 percent. Companies whose ratings are lowered below investment grade pay an average of about 7.31 percent..

Not all finance companies are vulnerable to LBOs because many don't have assets that can easily be turned into asset- backed bonds, according to Pimco's Kiesel.....

Be `Cautious'
The average credit rating in Merrill's main index for finance bonds is A1, or three levels higher than the Baa1 rating for the firm's broadest index.

Even before the SLM deal investors began to hedge their bets, demanding the finance companies include protection from LBOs in bonds they sell.

The companies sold $12 billion of bonds this year through May 21 with so-called poison puts that allow investors to sell the securities back to the issuer at 101 cents on the dollar if there is a change in control, according to data compiled by Bloomberg. That is up 72 percent from the same period of 2006, and compares with a 60 percent rise for all industries.

Poison puts are ``sort of a quick fix'' for investors as they fret nothing's safe from a buyout, Dill at Moody's said.

Capmark Financial Group Inc., the former commercial mortgage unit of GM, on sold $2.55 billion of notes on May 3 containing a poison put, the most ever by a finance company,

"Hall of Fame" A New Era / pimco

looks like the risktakers don´t need to invent the cash cow. they have found it .....for now.
once more fantastic stuff from pimco.

die cash cow muß momentan nicht erfunden werden. die scheint momentan überall vorhanden zu sein. wieder einmal mehr geniales von pimco

Global Liquidity Boom
The global financial system is indisputably experiencing a boom in liquidity, driven by growth in corporate cash balances, foreign central bank reserves, private equity and hedge funds. This liquidity boom, along with new financial products, is changing the way that investment professionals traditionally view, evaluate and invest in financial markets. On the corporate front, strong global economic growth and easy global monetary policy over the past several years have led to a sharp rebound in corporate profit growth. In the United States, corporate profits as a percent of nominal GDP are now at 40-year highs (Chart 1). Despite this solid profit growth, most CEOs have remained conservative with capital spending.

As a result, corporate cash flow and cash balances have soared, providing Corporate America with a surplus of funds.

The growth in cash on corporate balance sheets is serving as a catalyst for rising shareholder activism. Aggressive shareholders are increasingly putting pressure on management to redirect large cash balances toward share buybacks and increased dividends. High cash levels are further helping to facilitate more mergers and acquisitions. In addition, private equity investors are tapping into Corporate America’s significant cash position to use as part of an initial equity stake for leveraged buyouts (LBOs). These trends, influenced by high corporate cash balances, are fueling a global boom in equity markets. Thanks to easy access to capital from both the high yield and bank debt markets, cash is being transferred from bondholders to shareholders as Corporate America engages in a re-leveraging campaign.

International developments have also bolstered global liquidity. Solid global economic growth has boosted exports from emerging economies and supported rising commodity prices. The resulting trade surpluses have led to rapid foreign exchange reserve accumulation by central banks in emerging markets (Chart 2), ....., central banks have supported the U.S. bond market by helping to keep interest rates low, contributing to generous liquidity conditions.

The broader change in global savings patterns has been dramatic. Current account deficits in the emerging world have given way to current account surpluses. Borrowers have turned into lenders. China, now with a current account surplus of over 8% of GDP, exemplifies this trend of capital rolling “uphill” from the developing world to the developed world. In addition to Asian savings, the rise in crude oil over the past several years has resulted in massive savings by oil exporters, a large portion of which have flowed into sovereign investment funds in Middle Eastern countries. ...

foreigners have become the dominant bid in some segments of the U.S. market. In the U.S. corporate bond market, foreigners are increasingly shifting their bond allocations into credit markets, in order to earn higher yields. Due to large foreign capital flows, the credit market is currently in a state of technical imbalance in which the demand for bonds is greater than the new supply of bonds. Over the past three years, foreign buyers have absorbed more than 100% of the net new corporate bond issuance in the marketplace (Chart 4). Therefore, not surprisingly, credit spreads remain near all-time tight levels.

Finally, private equity capital and hedge funds have further benefited from a structural shift in the markets, and have helped to provide fresh liquidity into the financial markets. Private equity groups announced $700 billion worth of deals in 2006, more than double the record set in 2005.1 Deal sizes are also increasing. The Blackstone Group’s recent $39 billion all-cash purchase of Equity Office Properties (EOP) attests to the liquidity private equity players now have at their disposal. Hedge fund growth has also exploded and there appears to be no near-term end in sight given that these firms are now able to come to the public markets to raise equity to grow their capital base. As an example, Fortress Investment Group LLC recently raised $634.3 million in equity through an initial public offering (IPO).2 Private equity and hedge fund investors, driven by the need to justify lofty management fees, are seeking higher returns by embracing higher risk tolerances. As we discussed in our December 2006 U.S. Credit Perspectives, Credit Innovation and Opportunity, the quest for yield has fueled rapid innovation and rising risk in the credit markets.

New pools of capital are also seeking out alternative investments. .... Goldman Sachs has benefited tremendously from these secular changes in the financial markets . Goldman Sachs is not only one of the largest global advisory firms in the world, but it is also the largest manager of hedge fund assets.3 It is a primary beneficiary of the growth in collateralized debt obligations (CDOs) and credit derivatives, which have acted to expand liquidity in the credit markets through disintermediation and innovation. Goldman Sachs has aggressively moved into private equity capital fund raising, and reportedly just raised $19 billion through a new fund, ....

The trends that have contributed to tight corporate bond spreads are having a similar effect on the U.S. stock market. The supply of new stock issuance (Chart 6) has turned sharply negative due to rising share buybacks and LBOs. This technical imbalance, combined with solid economic and corporate profit growth, has helped lift equity prices to record highs. Robust global liquidity combined with reduced supply has changed the landscape of equity investing.

Asset Prices, Risk Premiums and Financial Conditions
The global liquidity boom has its consequences. Rising asset prices are leading to easy credit conditions, which in turn are supporting economic growth, lowering volatility and compressing risk premiums. In this environment, investors with relatively short memories have embraced this recent period of economic nirvana as if it were here to last, by taking on more leverage and adding even riskier investments.

In the credit markets, the low and declining default rate has encouraged a strong propensity to take risk over the past few years. As a result, the growth in global liquidity has increasingly been funneled into higher risk asset classes such as lower-quality investment grade corporate bonds, high yield bonds, emerging market bonds, collateralized debt obligations (CDOs), real estate and equities. This trend further reduces the cost of capital to take on leverage, supports more LBOs and provides additional fuel for the equity market. In fact, LBO volumes have grown at an annualized rate of 64% from 2002-2006.5 We have not seen this type of growth in corporate re-leveraging since the late 1980s. Given these conditions, it is no wonder the Federal Reserve is sounding hawkish. Accommodative financial conditions are providing a stimulus to the economy.

While monetary conditions have tightened somewhat with a higher Fed Funds rate, credit and financial conditions remain easy. These conditions are a significant reason why Moody’s consistently has pushed back its estimates for rising default rates (Chart 7). I believe investors are underestimating the risks present in today’s low default rate environment, because today’s credit markets are significantly impacted by technical factors. I am skeptical that credit spreads are at near all-time tights because of improved fundamentals, especially given the rise in shareholder-friendly initiatives, growth in private equity and increasing occurrence of LBOs. ...here an example where they are way too late..http://immobilienblasen.blogspot.com/2007/02/rating-agencies-fallen-asleep-doug-kass.html

Implications for Credit Investing
The liquidity-driven boom in today’s financial markets has had a significant impact on corporations. Cash continues to pile up on corporate balance sheets, and companies have never before found such easy access to capital, due to a benign credit environment and tremendous growth in the bank debt and private equity markets. Hedge fund growth has also led to strong demand for structured credit risk. These financial sponsors are flooding corporations and markets with new pools of capital. This trend helps to explain why corporate default rates have failed to rise despite projections of higher default rates. Simply put, it is hard to default when investors continue to lend money. http://immobilienblasen.blogspot.com/2006/11/leverage-buy-outs-lbos-private-equity.html

Despite low default rates, the credit market faces significant challenges arising from the growth in private equity and hedge fund capital. Equity-friendly measures, such as LBOs (chart 8), share buybacks, divestitures and mergers and acquisitions are on the rise. In addition, corporate profit growth is slowing, and management is beginning to re-leverage balance sheets in response to increasing pressure from hedge fund and private equity investors. As the pendulum continues to shift from bondholders to equity holders, we should expect shareholder-friendly initiatives to remain elevated.

Despite extremely tight credit spreads on investment-grade corporate bonds, investors continue to seek higher returns by investing further down the capital structure. This classic, late-cycle behavior supports the notion that we are in a liquidity-fueled market in which downside risk far exceeds potential upside returns, particularly for most investment-grade corporate bonds without covenant protection and for lower-rated, high yield bonds.

lbo madness / refinancing within month......

wow. refinancing billions of the riskiest loans within a few month (but unlike in the housing sector to lower payments). record lows on spreads, almost no defaults , covenants reduced, strong economy?, etc. and this prediction via bloomberg "Buyout Funds May Take Over $2 Trillion of Stocks" http://tinyurl.com/2csxyt .

must feel like paradise for debtors. only pessimists can ask "can it get any better from here on?" and "who will finance the exits when private equity wants to cash in....?"

makes me wonder .......

unfassbar. die waghalsigsten kredite werden bereits nach monaten zu noch günstigeren konditionen umgeschuldet. rekordtiefs bei spreads, keine ausfälle, kreditbestimmungen gelockert, ne starke wirtschaft ?, und die prognose via bloomberg das 2 billion an übernahmen demnächst anstehen......

muß wie im paradies für schuldner sein. nur pessimisten können es wagen zu fragen" kann es noch besser werden?""wer kauft denen die unternehmen eigentlich ab?" siehr für mich eher nach zukünftigen ärger an.

KKR, Blackstone Push for Lowest LBO Rates as Bankers Roll Over
Feb. 21 (Bloomberg) -- Henry Kravis and Stephen Schwarzman never had an easier time getting the lowest interest rates on loans from their bankers.

Just three months after borrowing $12.8 billion to pay for hospital operator HCA Inc. in November, Kohlberg Kravis Roberts & Co. and its partners negotiated a new loan with lower rates. Schwarzman, chief executive officer of Blackstone Group LP, is doing the same for a $3.5 billion loan that financed the takeover of Freescale Semiconductor Inc., the mobile-phone-chip maker.

Leveraged buyout firms are leading borrowers refinancing $64 billion of loans so far this year, more than in all of 2006, ..... Banks are giving in and reducing rates because corporate defaults are near all- time lows.

``This is the best loan market for borrowers I have ever seen,''

Loans for companies rated four or five levels below investment grade yielded an average 2.26 percentage points more than the three-month London interbank offered rate in the week ending Feb. 15, S&P says. That gap over Libor, a lending benchmark, was the smallest ever and compared with more than 4 percentage points in 2003. The difference saves $17.4 million a year for every $1 billion a company borrows.

HCA Refinances
Nashville, Tennessee-based HCA this month refinanced $12.8 billion of term loans arranged when a group including New York- based KKR, led by the 63-year-old Kravis, agreed to buy the company for $33 billion. The new loans pay interest at 2.25 percentage points over Libor, compared with the original agreement of 2.50 percentage points and 2.75 percentage points. For KKR and its partners, the annual savings amount to $54 million. The three-month Libor is 5.36 percent.

Loans helped fuel a record $1.55 trillion in mergers and acquisitions in the U.S. last year, New York-based S&P said. So- called leveraged loans financed 57 percent of those transactions, the highest in seven years, it said. Leveraged loans are considered below investment grade and are rated below BBB- at S&P and Baa3 by Moody's Investors Service.

``There is clearly room to exceed the biggest loan deal ever done,'' Moore said. HCA's financing was the largest sold to investors.

Charlotte, North Carolina-based Bank of America Corp., along with JPMorgan Chase & Co. and Citigroup Inc., both based in New York, led banks in arranging $480 billion of leveraged loans last year, up 62 percent from 2005, according to S&P. Parts of the loans are sold to investors, two-thirds of which aren't banks, up from 25 percent in 2001, according to S&P.

Investor `Influx'
More than 250 institutions purchased high-yield loans last year, compared with fewer than 100 in 2002, S&P says. Many of the investors are new to the market,

``The influx of additional market participants has diminished the ability for investors to organize and oppose a re- pricing,'' ..... ``The re-pricings are a function of too much liquidity. Private equity firms looking to get better terms and one-up each other have become epidemic in the loan market.''

Private equity firms announced more than $400 billion of acquisitions in the U.S. last year, including nine of the 10 biggest LBOs, according to data compiled by Bloomberg. Private equity firms typically finance about two-thirds of the purchase price with debt, resulting in below-investment grade credit ratings for the target company.

Schwarzman, 60, surpassed the record this month when New York-based Blackstone paid $39 billion for real estate investment trust Equity Office Properties Trust of Chicago.

Little Risk
Lenders see little risk in giving borrowers what they want. An expanding economy is making it easier than ever for companies to meet their debt payments. The default rate on leveraged loans was 0.45 percent in January, the lowest ever, according to S&P.

Lenders are recouping most of their money even after defaults. Recovery rates for bank debt averaged an all-time high of 93 percent last year, an S&P study found.

Loan investors in New York-based Refco Inc., the futures trader that in October 2005 filed for bankruptcy, recovered all their principal last year, according to S&P. Bondholders received about 83 cents on the dollar.

Borrowers with non-investment-grade ratings pay interest of 7.58 percent on average for loans, compared with about 7.59 percent for high-yield bonds, according to New York-based Lehman Brothers Holdings Inc. Over the past 10 years, loan rates have averaged 2.30 percentage points less than yields on junk bonds, which have fewer protections.

``High-yield bond investors are moving into the loan market as the spreads between high-yield bonds and leverage loans have narrowed,'' .

Market Lull
Lenders will be able to reject demands for lower rates in coming months because more companies will require credit, ..... Borrowers have profited from a lull in new deals, he said.

That will change in coming weeks because New Orleans-based Freeport-McMoRan Copper & Gold Inc. will need $11.5 billion of loans for its $26 billion acquisition of Phelps Dodge Corp., the world's third-largest copper producer and based in Phoenix, Arizona.

A group led by Kinder Morgan Inc. Chairman Richard Kinder said in August that it would take the Houston-based company private for about $22 billion, using $8.6 billion of loans for the purchase,

``The big deals coming will bring the market back into equilibrium,''

Too Complacent
``The worst of loans are written in the best of times and that could well apply to the current lending boom,'' ...... ``Loan sizes are increasing, borrowers are becoming more levered, and the number and stringency of covenants is being reduced.''

Borrowers in the U.S. this year have received or are seeking $16.3 billion of loans without so-called maintenance covenants, or restrictions such as quarterly limits on the amount of debt a borrower can have relative to earnings before items such as depreciation, interest and taxes. The amount compares with the record $24 billion for all of 2006, according to S&P.

`All About Control'
``Covenants are all about control,'' said GSC's Katzenstein. ``With covenants, you can get concessions from the borrower such as an increased interest rate or fees'' if they violate the terms of their loans, he said.

Austin, Texas-based Freescale is asking lenders to lower the rate on a $3.5 billion loan used to help fund its $17.6 billion LBO by a Blackstone-led group in December. The company in November agreed to pay lenders 2 percentage points above Libor. It wants to cut the margin to 1.75 percentage points, saving about $8.75 million in annual interest.

Nielsen Co., the owner of the ratings service and Adweek magazine, last month persuaded lenders to cut the margins on $5.2 billion of loans taken out in August that funded its $11.7 billion buyout. The group includes KKR, Blackstone and Carlyle Group of Washington.

Haarlem, Netherlands-based Nielsen is paying interest at Libor plus 2.25 percentage points, down from 2.50 percentage points to 2.75 percentage points on separate loans, slashing its annual costs by about $23.5 million.

freddie and fannie

more evidence the risk premiums are a little bit out of control or as jeff saut would say he feels like more and more using the "Jessica Simpson model of investing" ....

i give you this number from the latest fannie mae filing for the year 2003!(watch under the fannie logo)!. http://ccbn.mobular.net/ccbn/7/595/644/ / pdf (they restated the numbers numerous times and have put up some number for 2004. i don´t remember how many billions they have found in accounting errors.......if you want to get angry you should read the link with the letter to shareholders with the smiling raines......page 3. since then they had to reduce their portfolio. but the proportion is still unbelievable) maybe their headquarter is located in ...........


ein beispiel mehr das in sachen risikoaufschlägen irgendetwas nicht ganz stimmig ist. jeff saut würde es wohl das "jessica simpson model of investing" nennen.........

ihr braucht euch dafür nur die datenreihe von fannie mae aus dem jahr 2003 ansehen. die haben danach die zahlen diverse male korrigieren müssen und wohl auch noch teilweise nummern für 2004 veröffentlicht. etliche mrd an buchhaltungsfehlern wurden gefunden. in den letzten jahren mußte fnm ihr portfolio reduzieren. die proportionen von eigenkaiptal und garantierten anleihen ist aber immer noch atemberaubend.




Outstanding MBS1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,166

1 Unpaid principal balance of MBS guaranteed by Fannie Mae and held by investors other than Fannie Mae.

größer/bigger page 1 http://www.fanniemae.com/ir/pdf/annualreport/2003/2003annualreport.pdf (pdf)

outstanding guaranteed mbs $ 1.300.000.000.000 trillion!

core capital 34.000.000 billion! (2003)

spread today 0,24 over us bonds!!!!!!!

relations at freddie are not much better/ die relationen bei freddie sind nicht viel besser

Feb. 19 (Bloomberg) -- Freddie Mac, the second-largest source of money for U.S. home loans, said ``strong, steady'' demand among Asian investors will support the mortgage-backed bond market.

``There's strong, steady demand for Freddie Mac securities in this area of the world,''

Investors in Asia hold $3.1 trillion, or about two-thirds, of the world's foreign reserves. They increased purchases of U.S. agency debt for a third year in 2006 as they shifted from Treasuries in search of higher yields and returns, (lets hope that this will continue..../ man kann nur hoffen das die das beibehalten....)

Freddie Mac notes returned 4.1 percent last year, the most since 2002, compared with 3.1 percent for Treasuries

that makes sense.....read this stat http://immobilienblasen.blogspot.com/2006/09/fannie-mae-could-be-hit-hard-by.html (much more infos!/jede menge mehr infos)

Fannie and Freddie bought 25.2% of the record $272.81 billion in subprime MBS sold in the first half of 2006, according to Inside Mortgage Finance Publications, a Bethesda, Md.-based publisher that covers the home loan industry.

In 2005, Fannie and Freddie purchased 35.3% of all subprime MBS, the publication estimated. The year before, the two purchased almost 44% of all subprime MBS sold.

Three big lenders, NovaStar Financial , Deutsche Bank and BNC Mortgage, part of Lehman Brothers , sold more than half of their subprime MBS to Fannie and Freddie this year, said Andrew Analore, editor at Inside Mortgage Finance (looks like things are doing well for nova(nfi) and the other subprime players ........./sieht so aus als wenn bei nova /nfi und den anderen im subprimesektor alles bestens läuft....http://immobilienblasen.blogspot.com/2007/02/novastar-noise-saga-continuesgreenberg.html

but no worry....../ aber keine angst......

Other experts noted that when Fannie purchases subprime MBS, it usually only buys triple-A-rated tranches. In the event of losses, the triple-A (chart above) bits are the last ones affected. Ed Groshans, an analyst at Fox-Pitt, Kelton, estimated that if losses in these pools of mortgages reached 10%, investors in the triple-A tranches would still get all their interest and principal back ( well at least the a tranches are starting to show some sign of stress lately........../ die einfach a papiere zeigen immerhin ernste anzeichen von problemen.......)

Higher interest rates will cause more people to go delinquent on their mortgages, but not enough to push losses on these pools over 6%," the analyst said.

At the end of June, the loan-to-value ratio on Fannie's book of business was 54%, he added. ( i doubt that this can be said about the data for the last 3 years of subprime purchases...kann wohl nicht für die letzten 3 jahre der subprimekäufe gelten)

chart single a

and the bbb- is already diving......und die unterste stufe ist bereits im freien fall

The extra yield, or spread, investors demand to own Freddie Mac's notes over similar-maturity U.S. notes narrowed to 24 basis points on Feb. 16 from 32 basis points six months ago,.... (with the underlying assets depreciating and the homeowner refinancing at a record pace "2006 Cash-out refinancing hits 16-yr peak in Q3-Freddie "http://immobilienblasen.blogspot.com/2006/11/refinancing-freedie-mac-1994-vs-2006.html. und in derselben zeit fallen die zugrundeliegenden immobilienwerte und die hauseigentümer refinanzieren immer höhere hypotheken) Buying Support
Freddie Mac sold 35 percent of its reference notes to investors in Asia in the 12 months ended Sept. 30, compared with about 16 percent in 2001,

``Continued interest will support that sort of level,'' in the coming months, said Cook.

Asian investors bought about $135 billion net of U.S. agency debt last year, compared with net purchases of around $66 billion in government notes and bonds, according to Treasury Department figures. Buying of agency debt increased from $118 billion in 2005.

``From the perspective of central banks, it would make sense to shift to non-Treasuries because they probably want any bit of spread,''

China holds $1.07 trillion of the world's $4.99 trillion foreign reserves, the largest holding of any country. The next biggest holder globally is Japan, with $875 billion.

Freddie Mac had $776.9 billion in debt outstanding on Dec. 31, according to the company. Congress created McLean-based Freddie Mac and Washington-based Fannie Mae, the biggest mortgage finance company, to expand homeownership by increasing financing, and to provide market stability. (that really has worked well......./ man sieht gerade wie toll das gelungen ist.....) and with their creative handling on delinquencies the market looks more stable than it is.... thanks to mish! dank der eigenartigen handhabung von kreditausfällen sieht das ganze besser aus als es wirklich ist....)

http://globaleconomicanalysis.blogspot.com/search?q=freddie

i´m really no expert on accounting etc and i´m sure that the (by far) majority of the mbs backed by fannie and freddie are well protected and safe. but the proportion of the numbers and the fact that fnm could not provide correct numbers in the past and the almost non existent spread combined with the unravelling of one of the greatest bubbles of all times makes me wonder.......

lets hope the asians/the oil exporters will buy and buy and buy.........(and not just a few billions...)

bin sicher nicht ansatzweise ein experte in sachen bilanzierung etc. und ich bin ebenfalls überzeugt davon das der mit abstand größte teil der mbs gut abgesichert ist. aber die gewaltige diskrepanz zwischen ek und garantierten mbs und die tatsache das jahrelang keine bilanzen erstellt werden konnten kombiniert mit nicht vorhandenen risikoaufschlägen und nebenbei dem einbruch der größten blase der letzten zeit können einen nachdenklich werden lassen...

wünschen wir uns das die asiaten und die ölexportierenden länder weiter fleißig kaufen und kaufen und kaufen........

It's A Low, Low, Low, Low-Rate World / bw

everything is fine. cheap money will be here for years to come etc. only some very small warnings that some excess and risks are involved.

and they say that cheap money has saved the housing market from bursting. mmmhhhh, just look at the latest numbers. and by the way, the cheap money and all the praised innovations caused the bubble.

nevertheless the story is worth reading (mine is only a smaller summary). to read the full piece click on the headline.

alles in butter. billiges geld auf jahre hinaus etc. lediglich ein paar kleine warnungen das auch risiken bestehen. besonders das ausgerechnet der immobilienmarkt als beleg dafür herhalten muß das billiges geld ne tolle sache ist erscheint fragwürdig. genau dieses billige geld plus die hier gepriesenen kreditinnovationen haben erst zu diesem excess geführt.

trotzdem lesenwert.. um alles zu lesen bitte auf die überschrift klicken




Money is cheap. And some experts say it could stay that way for years. That's creating opportunity—and brand new risks ...

When the rate on the 10-year Treasury bond plunged from 6.5% in early 2000 to an average of 4% or so in 2003, the explanations were easy: tech bust, recession, weak capital spending, low inflation, steep rate cuts by central banks around the world. The low rates seemed perfectly normal—and sure to reverse on a dime when conditions changed....

Since then, plenty has changed. The Fed has hiked short-term rates by more than four percentage points. The global economy grew by 5.1% in 2006, the second-strongest performance in 25 years. Europe and Japan have recovered. Even tech spending seems to be on the rise, judging from Cisco Systems Inc.'s strong earnings report on Feb. 6. and yet!—10-year Treasury rates have risen only three-quarters of a percentage point.

Real rates, which adjust for inflation, have barely budged.It isn't only a U.S. phenomenon. Ten-year euro bonds are yielding around 4% today, no higher than in 2003, despite much faster growth in the region. Real rates in the euro zone are up only a bit.

Borrowers, of course, are deliriously happy. Even the shakiest companies are seeing their debt costs plunge. The spreads on triple-C rated bonds and lower—the junkiest of junk—are at a record low 4.7 percentage points over ultrasafe Treasuries, compared with the previous record of 5.2 percentage points in 1997,



Most remarkably, the craziness isn't likely to stop anytime soon. The low cost of capital is probably going to last "five to seven years," says Samuel Zell, ..... James W. Paulsen, chief investment strategist at Wells Capital Management (WFC ), sees an even longer horizon: "This could be a prolonged cycle where the cost of capital is low [for] 10 or 20 years." read what pimco has to say further down.../lest was pimco später im post dazu zusagen hat.....)

It is, indeed, a low, low, low-rate world.

Easy money is creating all sorts of economic benefits. Corporations are making capital investments (really? see graph....wirklich?)again—and with their borrowing costs so low, profits are still zooming. Private equity firms are using loads of cheap debt to buy companies at jaw-dropping prices. Even the housing market, which boomed for five years on cheap money, hasn't fallen apart. It's gliding to a soft landing rather than a hard crash, allowing consumers to keep spending. ".... (this guy hasn´t heard the latest news.../hat wohl lange keine nachrichten mehr gelesen....)

"I think that's going to be a growth accelerant around the world."



FUTURE TURBULENCE'

But the easy money also brings a slew of unexpected problems. Historically, risky borrowers have had to pay much higher interest rates on their debt. Now there's little penalty—and that means there's less incentive for companies to stay fiscally sound

"I've never seen issuers have this much power"

"You're laying the groundwork for future turbulence."

...key factor is the development of new trading instruments. Financial innovation isn't new,....But innovation seems to have reached a fever pitch with the recent advances in collateralized debt obligations (CDOs), which keep borrowing costs low by dividing risks into big buckets and then reallocating them among hundreds of investors. With nearly half a trillion dollars' worth issued in 2006 alone, and with the risks widely dispersed, investors are willing to put more skin in the game. "....

thats what pimco has to say
http://immobilienblasen.blogspot.com/2006/11/with-innovation-comes-risk-pimco.html
Does credit innovation carry risks? Yes. As we have seen with housing, new home buyers can be lured into buying homes they cannot afford. Ultimately, rising defaults and restricted credit availability will negatively affect the housing market, foreshadowing what is also in store for the credit market. ......... These products (cds, cdo´s, cpdo´s....) and markets are relatively new and, more importantly, have yet to be tested in a bear market.

Leverage has been pushed to the point that corporate bonds, and particularly CDS securities, may have limited upside potential going forward


But the downside of the long-term trend is short-term financial market excess. It's here, and it's real. "The economy is robust, [but] we've entered into this new phase where the markets are financing riskier transactions


The bottom line is that when there's too much money in the market, [investors] lower [their] standards." What's more, many are depending on instruments that are highly leveraged, numbingly complex, and untested by a market downturn. (should be a good feeling that highly leveraged hedge funds are often the counterparts.../muß ein gutes gefühl sein das extrem gehebelte hedge fonds oft der gegenpart einer wette sind....)



Over the long term, the big issue is the development of better financial systems in China, India, and other emerging markets. Right now money is pouring into real estate rather than infrastructure, education, and other essential investments. As financial systems improve in these countries, they will likely make better use of their own money. When that happens, the cost of capital around the world will go up.

But that's a long way off. In the meantime, rates are likely to remain low. "Whatever shocks are ahead," says del Missier, "the markets are better positioned to deal with them than they've ever been."

i also think they should mention the impact of the petrodollers. make sure you read this piece from pimco. one of the best ever http://immobilienblasen.blogspot.com/2007/02/its-low-low-low-low-rate-world-bw.html. looks like we need high oil prices to keep the game going........

ich finde das der einfluß der öl$ extrem wichtig in der betrachtung ist. bitte den link von pimco oben lesen. das beste was ich bisher gelesen habe.