Chart Of The Day "Junk Yields"

Despite the rollercoaster ride in stocks the action in the bond & debtmarket is even more fascinating....... The main driver of equities for the next few years will be the quality of the balance sheet ( especially after goodwill....) and the timetable for the refinancing of the maturing debt/bonds..... Earnings will be a second-tier issue..... Bondholders will be in the driver seat........ No more attempts to "return value to shareholders" like shown from Daimler ( see How Daimler Wasted € 7 Billion On Buybacks In Just 15 Months...... )..... Needless to say they are also now begging for some kind of bailout.......

Trotz des tagtäglichen Wahnsinns an den Aktienmärkten spielt sich noch sagenhafteres an den Kredit & Anleihemärkten ab. Denke das in den nächten Jahren wie bereits mehrfach erwähnt vorrangig die Bilanzqualität ( vor allem nach den kommenden Goodwillabschreibungen, da versteckt sich noch so manche Bombe....siehe Die nächste Bilanzbombe tickt FTD, besonders interessant wenn mal wieder auf die niedrige Buchwertbewertung der DAXtitel hingewiesen wird .... Got Gold......) sowie die Zeitachse der kommenden Refinanzierungen der ausstehen Anleihen/Kredite die erste Geige für die Aktienkursentwicklung spielen wird. Die Gewinne ( oder besser ausgedrückt Verluste ) rücken da eindeutig in den Hintergrund. Die Bondholder werden zukünftig das sagen haben..... Immerhin bleibt uns dann der Wahnsinn der schuldenfinanzierten Aktienrückkäufe erspart ( das passiert wenn der Vorstand sich mit Haut und Haaren dem kurzfristigen "shareholder value" & seinen Aktienoptionen verschrieben hat.....Betonung liegt hier auf kurzfristig ... Fragt mal bei Daimler nach... siehe How Daimler Wasted € 7 Billion On Buybacks In Just 15 Months...... )


WSJ

Unrelenting declines in corporate "junk" bonds have pushed yields on these riskier securities to over 20% on average, a record

Bespoke

Based on data from Merrill Lynch, high yield bonds are yielding nearly 1,800 basis points more than comparable Treasuries. In the last month alone, spreads have risen by more than 200 basis points, and since bottoming in the Summer of 2007 at 241 basis points, they are up 645%. To put this in perspective, with the 10-Year US Treasury now yielding 3.4%, a high-yield borrower would need to pay roughly 21.4% per year to take out a ten-year loan. With terms like these, who needs loan sharks?

Much more insight via Naked Cpitalism Junk Bond Yields Up Sharply. On top of this visit FT Alphaville for an even more "impressive" chart on CDS ( see iTraxx Europe at all time high ). Combine all this with this chart and is not difficult to imagine that the worst is still to come.....

Mehr Details mal wieder von Naked Capitalism Junk Bond Yields Up Sharply . Einen noch beeindruckenderen Chart der CDS bietet FT Alphaville ( siehe iTraxx Europe at all time high ). Wenn man nun das Drama mit diesem Chart kombiniert ist unschwer zu erkennen das uns "ruppige" Zeiten ins Haus stehen......

Another LBO Deal Bites The Dust....

Looks like Ceberus and others that just a few month ago saw the golden era of private equity are trying to back out of as many deals they have made during the latest quarter of this period. Thank god that Ceberus had forced Daimler only to a few more concessions..... Mish once called the mania "Buyout Bingo". It has worked fine on the upside.....

Sieht ganz so aus als wenn Cebrus & Co die noch vor wenigen Monaten einie goldene Ära für Ihre Branche gesehen haben wollen momentan alles mögliche Versuchen um aus Ihren Kaufverträgen auszusteigen. Zum Glück hat Ceberus Daimer beim Chryslerkauf nur zu Nachbesserungen gezwungen.... Mish hat das ganze mal sehr treffend als "Buyout Bingo" beschrieben. Auf dem Weg nach oben eine tolle Geschichte.....

Cerberus abandons $7bn deal as Alltel founders
Cerberus Capital Management has pulled out of its $7bn deal to buy United Rentals, making the planned private equity takeover of the world’s largest equipment lender the latest casualty of the credit squeeze.

The news sent the company’s shares plunging 30% to $23.76. Cerberus had agreed in July to pay $34.50 per share. United Rentals said Cerberus’ action was “unwarranted and incompatible with the covenants of the merger agreement”.

Amid fresh concerns over the ability of private equity groups to fund LBO deals, bankers for TPG and Goldman Sachs were on Wednesday struggling to find investors for loans funding the $27bn buy-out of Alltel, the US wireless carrier. The underwriters reduced the size of the loan package to $4.89bn from $6bn and increased the discount on the issue to 96 cents on the dollar from 97.5 cents.

More trouble for Ceberus.... This deal was done during the past 2 yaers close to the paek of the housing market.....

Hier kommt weiteres Ungemach auf Ceberus zu..... Dieser Deal wurde binnen der letzten 2 Jahre auf dem Peak des Immobubbles abgewickelt.....

GMAC Unit Poses Challenge to Cerberus

The troubles concern GMAC's Residential Capital LLC, once a big source of profit but now burdened with a portfolio of loans rapidly declining in value. That has put the unit, known as ResCap, in danger of violating terms of loan agreements, triggering concerns that its lenders will demand immediate payment or force the unit into bankruptcy protection if GMAC or its owners don't step in with an equity

"poster child for what was not right in the underwriting"

Schadenfreude. The fact that the core tenant is Citigroup doesn´t make things better.....

Schadenfreude pur! Die Tatsache das der Hauptmieter Citigroup ist macht die Sache sicher nicht angenehmer...


NYT Financial Ground Has Shifted Under a Record Deal
The record price paid in January for the 41-story aluminum-clad office tower at 666 Fifth Avenue — $1.8 billion — was breathtaking, even by the standards of the heady Midtown Manhattan commercial real estate market.

Making its first major foray into the Manhattan office market, the buyer, the Kushner Companies of Florham Park, N.J., paid more than three times what the building fetched in 2000.

Today, however, some real estate specialists regard the 666 Fifth Avenue transaction as a textbook example of the risky practices that were prevalent before the current credit squeeze, when many loans were based not on the actual cash flow of the building from existing rents but rather on optimistic projections of what the space might command once those leases expired.

The deal for 666 Fifth “was the poster child for what was not right in the underwriting,”....

Although 666 Fifth Avenue commanded the highest price ever paid for a single building, it does not have quite the cachet of the top Midtown office towers like the Seagram Building. Still, it has a roster of brand-name tenants — one-quarter of the space is leased to Citigroup — and is in a desirable neighborhood, where rents were climbing steadily at the time of the sale.

What raised eyebrows was the financing of 666 Fifth and other buildings sold late last year and early this year, said Robert M. White Jr., the president of Real Capital Analytics, a New York research firm.

A group of lenders led by the real estate unit of Barclays Capital agreed to provide an interest-only first mortgage of $1.215 billion based on an annual cash flow of $114 million, or 1.5 times the debt service, according to a document filed with the Securities and Exchange Commission.

But a footnote pointed out that the cash flow from existing rents would actually cover only 0.65 percent of the debt service. Mr. White calculated that the building’s shortfall amounts to $5 million a month. A $100 million reserve fund was included in the debt package to cover the shortfall.



Underwriting standards have tightened considerably since the summer, and now investors like the Kushners who bought property early in the year are finding they have to invest more of their own money — and assume more of the risk — than they had expected.

Like many buyers, Kushner relied on high-cost short-term financing to make up most of the gap between the first mortgage and the purchase price for 666 Fifth.

By the time the bridge loans had to be paid off, the theory went, the building would be refinanced or the 80,000-square-feet of glassy retail space, most of which faces Fifth Avenue, would be sold as a condominium.

It has not worked out that way. In the spring, the company hired the Carlton Group, a New York investment bank, to help it restructure the deal. But in recent weeks, the company used its own cash to pay back one $200 million bridge loan, said Jared Kushner, the publisher of The New York Observer and a principal in Kushner’s New York office. Another repayment deadline is coming up soon.

Mr. Kushner said the company had a variety of options, including “writing a big check ourselves.” The cash-rich Kushners recently sold 17,500 apartments in five Eastern states for about $2 billion, according to a spokesman.

The Kushners are thought to be much better off than Harry Macklowe, the New York real estate investor who also faces a deadline for repaying a bridge loan. Many real estate professionals say Mr. Macklowe ( read So Many Deals, So Much Debt ) could lose control of the seven Midtown Manhattan office buildings he bought this year as part of the Blackstone Group’s purchase of Equity Office Properties as well as his prized General Motors Building on Fifth Avenue between 58th and 59th Streets. .....

Their broker, Howard L. Michaels, chief executive of the Carlton Group, said the building had generated a lot of interest from investors because of the prospects for rent growth over the next few years. Leases for more than 800,000 square feet of space (out of a total of 1.45 million — with rents far below today’s market rates — are scheduled to expire before 2011.

Annual asking rents for spaces that are currently available range from $92 to $118 a square foot, according to the CoStar Group, a research company in Bethesda, Md.