2009 Starts With A New Record......Largest & Fasted LBO Bankruptcy Filing......

At least to my knowledge.....Barely one year after buying the US chemical company Lyondell for $ 19 billion the 3rd. largest chemical company is filing for bankruptcy for 79 of its global affiliates Details via FT Alphaville. According to Breaking News ( no link ) the deal was financed with $ 13 billion of new debt. The major piece was a $ 8 billion bridge loan with a coupon of 9,5 percent...... After the refinancing collapsed ( what a surprise ) the rate jumped to 12 percent..... And some still think the prices for the leveraged loan market are not reflecting the real market prices ( have heard many conference calls from banks that still refuse to mark to market their leveraged loan book "our loan is different...") See update at the end of the post...... This is indeed a perfet example of how much excess has fueled that LBO & Private Equity markets until 2007..... Maybe the CEO from Dow Chemical should read the bankruptcy filing very closely...... The following chart is a good guide that more Chapter 11 filings are on the way and this record won´t last for long............

Zumindest meinem Kenntnisstand nach......Knapp ein Jahr nach der Übernahme des US Chemieunternehmens Lyondell für satte 19 Mrd $ hat das in Rekordzeit zum drittgrößte "hochgezüchtete" Chemieunternehmen LyondellBasell für 79 Tochterunternehmen ( siehe Details via FT Alphaville ) Insolvenz angemelden müssen. Nach Angaben von Breaking News (kein Link) ist die Übernahme seinerzeit mit 13 Mrd $ an neuen Verbindlichkeiten gestemmt worden. Davon satte 8 Mrd $ mittels einer Brückenfinanzierung die zügig refinanziert werden sollte. Wie wir alle wissen ist den Kreditmärkten nach jahrelangem Tiefschlaf ein Licht aufgegangen und die Banken blieben auf Ihren Krediten sitzen. Der Zinssatz dieser Finanzierung ist von seinerzeit 8% auf nun 12% gestiegen. Schon lustig wenn immer noch einige denken das die gehandelten Preise für diese Leverage Loans als übertrieben niedrig betrachtet werden und die Weigerung nach "Mark-to-Markt" zu bilanzieren ständig erneuert werden. Verweise hier auf das Update am Ende...... Bin mal gespannt ob Ackermann & Co ( "Unsere Leveraged Loans sind anders"....sprich besser als der breite Index ) bei der nächsten Präsentation der Abschreibungsrunde in Ihren Kommentaren etwas demütiger werden...... Dieses Beispiel zeigt mehr als eindrucksvoll wie vollkommen irre die Exzesse bis zum Jahr 2007 im Bereich LBO und Private Equity gewesen sind...... Ich hoffe der CEO von Dow Chemical der ja momentan drauf und dran ist einen vergelichbaren Fehler zu wiederholen liest sich das Filing ganz genau durch. Hätte Familie Schaeffer beim Contideal auch gut zu Gesicht gestanden..... Der nachfolgende Chart dürfte einen Vorgeschmack darauf geben was uns an Problemfällen nich erwartet...... Tippe mal das dieser Rekord von LyondellBasell noch in diesem Jahr gebrochen wird..... FAZ Auf die Gläubiger kommen hohe Verluste zu & FT Deutschland Großaktionär flüchtet aus Air Berlin Da benötigt aber einer dringend Kohle um bei Lyondell zu "verbilligen".......

This chart illustrates further that Private Equity wasn´t the only one that fell in love with debt.... Several listed and former sound companies will pay a very high price for their way to often megalomaniac takeovers and mergers. Just ask Rio Tinto.... They bought Alcan with close to $ 40 billion of new debt just to fend off the BHP Billiton approach ( see Debt Details via FT Alphaville ) A poison pill indeed....... :-)

Diese Übersicht belegt eindeutig das nicht alleine Private Equity dem Wahn des billigen Geldes und unsolider Übernahmen erlegen ist..... Unglücklicherweise wird es auch viele ehemals solide Unternehmen erwischen die Ihre oft wahnwitzigen Megadeals in Cash also neuen Krediten finanziert haben. Fragt mal bei Rio Tinto nach...... Die haben einzig und alleine um die Übernahme durch BHP Billion zu verhindern mal eben für knapp 40 Mrd $ Alcan erworben..... Selbstredend fast ausschließlich durch die Aufnahme neuer Schulden ( Deteils der Verschuldung ...... Das nenne ich mal ne echte Giftpille.......

Jan. 7 (Bloomberg) -- LyondellBasell Industries AF SCA’s Lyondell Chemical unit and some other U.S. affiliates, citing waning demand for their products, filed for bankruptcy in New York.

Lyondell Chemical, based in Houston, has assets of $27.1 billion, debt of more than $19.4 billion and more than 25,000 creditors, according to a petition filed yesterday in U.S. Bankruptcy Court in Manhattan. Seventy-nine of the company’s affiliates also will file for court protection, including Basell Finance USA Inc., according to the filing. ( see Text via FT Alphaville )

LyondellBasell, one of the world’s largest closely held chemical producers, said it sought protection for its U.S. business because of a “dramatic softening in demand” during the past six months as well as “unprecedented volatility in raw materials costs.” The company said in a statement that it expects a recovery during 2009.

> No word about the massive leverage....... If their recovery plan is based on the assumption that there will be a rebound in 2009 that will last i think it is a safe bet that they are still smoking some of the funny stuff.....

> Schon peinlich wie der Hautgrund, die extrem hohe Verschuldung, nicht erwähnt wird...... Fast genauso peinlich ist die Annahme das sich bereits im Jahr 2009 alles wieder nachhaltig zum besseren wenden wird......

Biggest Creditor
Lyondell’s largest unsecured creditor is the Bank of New York Mellon Corp., as trustee for $615 million in unsecured notes, as well as $241.4 million in unsecured notes in affiliate Millennium America Inc., according to the court filing. LyondellBasell is saddled with $26 billion in debt. Its largest lenders include Merrill Lynch & Co., Goldman Sachs Group Inc. and Citigroup Inc.

Standard & Poor’s predicted “substantial principal losses for some creditors” of LyondellBasell, analysts led by Frankfurt-based Tobias Mock wrote in a Dec. 30 report.

Petroleos De Venezuela, the Venezuelan state-owned oil company was listed as a third-largest unsecured creditor, with $233.6 million in trade debt.

Lyondell’s Houston Refining unit imported an average of 198,000 barrels a day of crude oil from Venezuela in the first nine months of last year, according to U.S. Energy Department data. The refinery has a contract to buy 230,000 barrels a day of oil from Petroleos de Venezuela, according to a Nov. 13 securities filing. PDVSA, as the company is known, didn’t return a call seeking comment yesterday.

BASF Claim
BASF Corp., based in Florham Park, New Jersey, may have a claim worth $206.4 million under a judgment against the company which is “contingent and disputed,” according to court documents. The company is a unit of BASF SE, the world’s largest chemical producer, based in Ludwigshafen, Germany.

Apollo Management LP, the private-equity firm led by Leon Black, is among Lyondell Chemical’s largest creditors, according to a person with direct knowledge of the matter.

Apollo, based in New York, is a member of a lending group providing so-called debtor-in-possession financing to fund Lyondell’s operations, according to the person, who asked not to be identified because Apollo’s stake hasn’t been disclosed. Steven Anreder, a spokesman for Apollo, declined to comment. Lyondell spokeswoman Susan Moore didn’t return phone calls seeking comment.

Access Industries ( which owns LyondellBasell ) agreed to provide $750 million of the $3.25 billion in loans to fund Lyondell Chemical’s operations during bankruptcy, Access said in a statement distributed by PR Newswire.

Goldman Sachs, Merrill, Citigroup and other banks arranged the financing, which includes $12.5 billion of first-lien bank loans, $5.5 billion of second-lien notes and loans and $2.5 billion of third-lien notes and loans, according to S&P.

> This "so-called debtor-in-possession financing" from Apollo & Co is more like a doubling down......

> Dieses sogenannte "debtor-in-possession financing" von Apollo & Co. ist in Wirklichkeit ein verzweifelter Versuch vom vorherigen Investment überhaupt noch was zu retten......

Bloomberg

Apollo, TPG Inc. and Blackstone Group LP’s GSO Capital Partners were among buyout firms that bought high-yield, high- risk debt last year at discounted prices. The average high-yield loan price fell 28 cents on the dollar last year to 66.6 cents, according to Standard & Poor’s LCD, as Wall Street firms whittled down $230 billion of loans they’d promised to private-equity firms to fund takeovers before credit markets seized up.

“Apollo may be trying to protect an earlier error in judgment with Lyondell,” said Jonathan Macey, a law professor at Yale University. He said Apollo may be trying to avoid deeper losses by providing bankruptcy financing.

Apollo bought Lyondell bank loans from Citigroup in April, bankers familiar with the sale said at the time. Citigroup sold about $1.9 billion of the debt, about a fifth of a $9.45 billion term loan, according to a CreditSights Inc. report on April 29. Goldman Sachs Group Inc., Merrill Lynch & Co. and the other banks that held the loans offered to sell the debt above 90 cents on the dollar in May, according to a Standard & Poor’s LCD report that month.

> On top of this it wouldn´t surprise me if any of the loans Citi managed to unload are heavily financed through Citi aka the taxpayer..... Wouldn´t be the first time.... ( see UFOs (or Unidentified Financing Objects) & No Kidding.... More Off Balance Sheet Vehicles For Citigroup , & Banks use discounts to tempt ‘vulture funds’ )...... I think this quote “Most of the leverage being provided by banks is only being provided if you buy their loans” sums it up......

> Darüberhinaus würde es mich nicht wundern wenn von den Krediten die losgeschlagen werden konnten die Finanzierung vom selben Haus ( also in diesem Fall Citi oder besser dem US Steuerzahler) bereitgestellt worden ist..... Wäre ja nichts neues.... ( siehe UFOs (or Unidentified Financing Objects) & No Kidding.... More Off Balance Sheet Vehicles For Citigroup & Banks use discounts to tempt ‘vulture funds’ ) ....... Ich denke dieses Zitat “Most of the leverage being provided by banks is only being provided if you buy their loans” spricht Bände.....

$12.7 Billion Merger
LyondellBasell said Dec. 31 that it was considering alternatives, including a Chapter 11 filing, to restructure debt that financed its $12.7 billion merger a year ago.

Lyondell Chemical Worldwide’s 10.25 percent notes due 2010 most recently traded at 16 cents on the dollar yesterday, according to Trace. The Lyondell Chemical unit’s 9.8 percent notes due 2020 traded at 22 cents on the dollar. No quote was available for the 8.375 percent notes due 2015.

Blavatnik’s Stake
Lyondell Chemical is partly owned by Access Industries Holdings LLC in New York, founded by billionaire Len Blavatnik.

LyondellBasell was created in December 2007 by the $12.7 billion acquisition of Lyondell Chemical and affiliate Equistar Chemicals LP by Dutch chemicals company Basell AF SCA. The combination created one of the world’s largest independent chemical producers with 16,000 employees and pro-forma sales of $54.6 billion in the year through September, according to its Web site.

UPDATE on "Mark-To-Market" from leveraged loans.....

Citigroup Cites $2 Billion in Exposure to Lyondell

The exposure, as of Dec. 31, is primarily in Citi's institutional-clients group. The exposure consists of three loans having an original value exceeding $2 billion. Citigroup sold a chunk of the loans last year to private-equity firm Apollo anagement LP and recorded write-downs on the value of the remainder over the course of 2008. That left Citigroup with a marked-down exposure of $2 billion.

Citigroup now is taking a conservative approach by adding $1.4 billion to its loan-loss reserves. That amount assumes Citigroup won't recover any of the loans as LyondellBasell's bankruptcy proceeds.

> Needless to say that i think this kind of high marks on troubled loans is not only common from our old frined Citi.....

> Überflüssig zu erwähnen das ich annehme das diese Art der Kreditbewertung eher die Regel als die Ausnahme ist......

Another Private Equity Deal That Went Bust Within 24 Months

Commercial Real Estate (CRE) & Private Equity...... When ever you hear this combination during the next few years it will be almost to 100 percent in connection with disastrous deals...... No surprise that Blackstone & Fortress are involved once again....... :-) The enitire CRE complex will be the next very very big headache for the balance sheets from banks...... It´s a safe bet that we will hear similar stories also from the LBO front on a regularly basis ( see Tribune Co. Could Be Flirting With Bankruptcy NYT) ......

Wann immer in den nächsten Monaten die Begriffe Commercial Real Estate & Private Equity im Zusammenhang auftauchen kann man sicher sein das es sich fast zu 100% um das implodieren von Mrdschweren Deals handelt...... Sicher auch kein Zufall das die Namen Blackstone und Fortress in schöner Regelmäßigkeit auftauchen..... Der gesamte Bereich der gewerblichen Immobilien wird noch für extrem große Kopfschmerzen bei den Bänkern und entsprechend große Löcher in den Bilanzen der Banken sorgen...... Wir werden uns an ähnliche Schlagzeilen vor allem auch im Zusammenhang mit den berühmt berüchtigen LBO´s von "Pirate " Equity sowie fremdfinanzierten Übernahmen im allgemeinen ( z.B. CONTI/SCHAEFFER..... ) gewöhnen müssen..... UPDATE: Erster großer Autozulieferer meldet Insolvenz an Manager Magazin

WSJ Extended Stay Could Transfer Chain to Lenders
Extended Stay Hotels Inc. is in early talks that could result in turning the hotel chain over to its lenders, a sign of the deep trouble awaiting the commercial real-estate business.

Extended Stay's difficulties signal a new phase of distress in commercial real estate, because they arise directly from the weakening economy. Until now, problems have mostly involved developers unable to obtain refinancing for otherwise healthy operations.

Lightstone Group LLC, Lakewood, N.J., bought Extended Stay from Blackstone Group LP for $8 billion in April 2007. The deal was highly leveraged, hastening Extended Stay's troubles. The chain has no major debt expirations due soon

But Extended Stay's cash flow is crashing, as business activity across the country contracts. That is putting fewer people in its 684 U.S. and Canadian hotels, used by corporate travelers on long assignments. Extended Stay has 13,000 employees. It is too soon to say if a takeover by lenders would result in layoffs or hotel closings, according to people familiar with the matter.

As conditions deteriorate, Extended Stay has been forced into discussions with its lenders, and people involved in the talks say a transfer of ownership could come within a month or two. Extended Stay has recently hired Lazard Ltd. as financial adviser and New York law firm Weil Gotshal & Manges as bankruptcy counsel......

During the real-estate lending boom, Wall Street originated $600 billion of commercial mortgage-backed securities. The default rate on commercial mortgage debt has remained near historic lows, even while residential-related debt suffered a severe downturn.

But that is now beginning to change, sending new shock waves into much-battered banks, private-equity funds and other financial institutions that participate in the $1 trillion commercial real-estate debt market. Hotel landlords typically are the first to feel the pain in a downturn because hotels have the shortest leases in real estate -- one night at a time.

bigger/größer Thanks to Calculated Risk

> I just cannot wait for this deal Hilton's $20 Billion Sale to Blackstone Is Completed to blow up........

> Ich denke es wird nicht mehr lange dauern und der absolute Königsdeal unter den Hotelbuyouts ( Hilton's $20 Billion Sale to Blackstone Is Completed ) dürfte in ähnliches Fahrwasser geraten.....

( OKTOBER 2007 ) The sale, for $26 billion including debt, is a record for the hotel industry. New York-based Blackstone, which already owns the La Quinta lodging chain, joins Apollo Management LP and TPG Inc. in targeting hotel companies for their cash flow and real estate.

An Extended Stay failure reveals how a commercial real-estate downturn could ripple through the financial system.

When Lightstone Group and preferred equity partner Arbor Realty Trust bought Extended Stay from private-equity firm Blackstone Group in 2007, it borrowed more than $7.4 billion. Wachovia Corp., Bank of America Corp., Merrill Lynch & Co. and Fortress Investment Group put in $3.1 billion in so-called mezzanine financing, which isn't as highly secured as other types of debt. People involved in the transaction say an analysis of the company's value shows that much or all of the mezzanine debt could be wiped out in any renegotiated deal.

Bondholders have hired Houlihan Lokey Howard & Zukin for restructuring talks.

Extended Stay is still meeting its debt service, but people familiar with the matter say it could default within the next 60 days if the economic downturn continues as expected. Revenue per available room, or RevPar, a common hotel-industry measure, will be down more than 10% this year at Extended Stay, according to someone familiar with the matter. Much of that decline has come in the last two months.

But it was the Extended Stay deal that was Mr. Lichtenstein's biggest. Extended Stay has operations in 44 states and Canada. It was also among his riskiest deals, as

Lightstone, with help from Arbor Realty, arranged to put down just $600 million of equity, or 8% of the total price. (Blackstone, which made about $3 billion on the sale, kept an equity interest.)

Mr. Lichtenstein saw increasing demand from business travelers who needed hotel accommodations for weeks or even months at a time. He also believed he could unlock value at Extended Stay by taking advantage of the chain's size and paying more attention to management.

A couple of months after the deal closed, Mr. Lichtenstein acknowledged the easy money that helped him complete the deal had disappeared. "We were one of the last deals in," he said.

Troubles also have surfaced at Lightstone's Prime Retail division, which owns roughly 30 malls and shopping centers in the U.S. and Puerto Rico. Lightstone has sought to turn over at least six of its malls to lenders after falling behind on debt payments.

UPDATE via NYT:

Similar screenplays/attributes can be attached to almost every other deal from "pirate" equity since 2005....

Ähnlichen Drehbüchern dürften fast alle Übernahmen von "Pirate" Equity seit 2005 früher oder soäter folgen......

In a report by the ratings agency Standard & Poor’s, 86 companies weren’t meeting their debt obligations through mid-November of this year, with 53 of those, or 62 percent, having ties to private-equity firms at one point in their lives.

A new monoline exposure for banks: CLO negative basis trades

Another day another problem for banks, "pirate equity" and financials...... It feels like more and more pillars of the "alchemy of finance" are crumbling down.....

Ein neuer Tag und mal wieder neue Probleme für Banken, "Pirate Equity" und Finanzwerte im allgemeinen.... Es sieht so aus als wenn immer mehr Pfeiler der "Finanzalchemie" beginnen wegzubrechen....

FT Alphaville Banks’ exposures through bond insurers, or monolines, is far from limited to mortgage-related MBS and muni bonds. There’s a third big exposure - to leveraged buyout loans - that banks will have to deal with if monolines hit the rocks.

Negative basis trades have been around for a while. A bank buys a bond - say it’s AAA - and then it takes out a CDS against that bond with a monoline. Since spreads in the CDS market for such tranches have been typically much lower than in the cash market, the bank pockets the difference.

But as well as banks’ much-dissected CDO exposures, there have been two other big markets for that kind of trade: on infrastructure bonds and - most interestingly - in structured finance, on CLOs (collateralised loan obligations) - CLOs being the vehicle of choice in which to park massive buyout loans.

Monolines, of course, are no longer in a position to be writing new contracts for banks to use as one half of their negative basis trades. The consequence of that has been that banks have stopped buying AAA tranches of CLOs. Unable to sell those, CLOs have faltered and banks in turn, have found themselves with lots of big buyout loans stuck on their books. No new financing is available for private equity deals.

According to Euroweek, 90 per cent of all CLO AAA-tranches have been bought and then wrapped in negative basis trades. Which begs a second question. What of all the AAA CLO and infrastructure paper that banks already have on their books? None of it, of course, shows up as exposures in filings because, net, there is no exposure. Assuming, of course, your CDS counterparty is safe. Err…

> Deutsche Bank was very optimistic in yesterdays call to unload all the € 21 bln loans with no losses. They argue that the quality of the loans is high and that it is and has always been the policy from Deusche to take 10 percent of the structured loans onto their books to signal that they have full confidence in their underwriting standarts. I think they are way too optimistic.....

> Die Deutsche Bank has sich gestern in der Analystenkonferenz extrem optimistisch gezeigt das sie die knapp 21 Mrd € an Unternehmenskrediten die sich in Folge des Private Equity Übernahmewahnsinns angehäuft haben ohne Verluste weiterreichen kann. Argumentiert wird das die Qualität hoch sei und das es seit jeher Politik der Deutcshen Bank ist jeweils 10 % der so strukturierten Verkäufe in die eigenen Bücher zu nehmen. Damit soll unterstrichen werden das man vollstest Vertrauen in die Kreditprüfung hat. Löblich...... Denke trotzdem das hier sicher noch einige gewaltige Abschreibungen kommen werden.

Even if monolines don’t crash and burn, banks will still have to make writedowns on these trades. As the value of the CDS written by the monoline decreases, so, too, will banks exposure to CLOs, and through them LBOs, have to increase. And higher exposures will also, of course, put pressure on capital.

And one final point: having set up one negative basis trade, it hasn’t been uncommon for banks to take out a CDS against the CDS counterparty in that trade. As Paul J Davies points out in today’s FT, through negative basis trades, banks’ monolines exposures have often been hedged with other monolines.

Update: The WSJ has an interesting number crunching piece on the state of the LBO industry - and the amounts banks are finding themselves stuck with.

One Of The Last Covenant Lite LBO´s Is Already Hitting The Wall

Oh boy..... Seems to be not a smart move to do a LBO in the music industry......Shocking! But that the worst case is coming just 6 month after the deal is done shows you how incomptente the buyers & lenders have become...... Needless to say that the rating agencies are as always way behind the curve and are just starting to wake up ( see Moody’s names ‘aggressive’ buy-outs )

Was für ein Deal..... Sieht ganz so aus als wenn ein LBO in der Musikindustrie nicht die beste aller Ideen ist. Wirklich überraschend....... Der eigentliche Hammer ist das bereits nach 6 Monaten anscheinend alle Dämme brechen. Das zeigt recht deutlich wie vollkommen abgehoben der Käufer und die Kreditgeber auf dem Höhepunkt der Übernahmewelle gewesen sind. Überflüssig zu erwähnen das die Ratingagenturen wie zuletzt üblich im Tiefschlaf gewesen sind und erst langsam erwachen ( siehe Moody's outet aggressive Investoren )


EMI falters on £2bn Citi loan facility? FT Alphaville
This weekend, EMI gave, perhaps, a grim portent of things to come for leveraged buyouts.

By our reckoning, Monday’s £200m rights issue is, in fact, an “equity cure.”

This equity has probably been issued to meet a cash-flow shortfall - real or projected - on EMI’s £2bn loan facility with Citi, put in place this July when the record label was the object of an LBO from Terra Firma. The cure may be required to bolster faltering EBITDA to debt ratios tested by the loan facility.

Cause for around a third of its workforce - or around 1,700 jobs - to be slashed, as reported by the Mail on Sunday.

Other LBOs too, are likely to be feeling the pinch. What, we wonder, will be the impact on deals such as Alliance Boots - where the debt taken on board is an eye-watering £12bn.

The Citi facility for EMI was one of the last “covenant-lite” LBO financing deals to be pushed through. Under more common LBO financing terms, we suspect EMI would be looking at a default.

> Time to review An investment banking lexicon :The post-credit squeeze edition :-)

COVENANT-LITE
Pre-squeeze: Please pay back the money (no rush)
Post-squeeze: Please get approval for all expenses above £50

EMI
Pre-squeeze: Coveted transaction
Post-squeeze: Distressed debt play

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

UFOs (or Unidentified Financing Objects) / FT

The FT should trademark the term UFOs (or Unidentified Financing Objects). Fantastic! This is a follow up on No Kidding.... More Off Balance Sheet Vehicles For Citigroup & Banks use discounts to tempt ‘vulture funds’ / FT.

Die FT sollte sich den Begriff UFOs (or Unidentified Financing Objects) urheberrechtlich schützen lassen. Genial! Das Ganze ist eine Ergänzung zu den vorherigen Posts No Kidding.... More Off Balance Sheet Vehicles For Citigroup & Banks use discounts to tempt ‘vulture funds’ / FT

The Real Deal: beware the banks’ UFOs / FT
Want to get rid of your leveraged loans quickly? Don’t sweat.

All you have to do is leverage up the leverage by creating a new vehicle. Let’s call them UFOs (or Unidentified Financing Objects).

These have a standard CLO structure, but they remain private, are controlled by the banks and are designed to help shift the catalogue of leveraged loans stuck on their balance sheets from financing deals.

Here’s how they work.

The bank holding the loans teams up with a hedge fund, or a buy-out group. Together, they create a UFO to buy selective loans at the current market discount, say 96 cents in the dollar, from themselves.

The bank, which owns the loans at par value, takes the write-off, but gets to hold on to the better quality debt tranches, which it can carry at a much lower cost of capital.

The hedge fund/buyout group takes the highly-leveraged “first loss” or an equity slice of the UFO, in the hope that it can make profit on the underlying loans when they return to par value at maturity or when the debt is refinanced.

The banks say these UFOs are a pure creative genius, that they do the market a favour by creating liquidity where there is none, and help lift the secondary prices of the loans by demonstrating demand.

Meanwhile, they can get a substantial return on the senior slices of debt - at least relative to their cost of funding and the risk capital they are required to hold.

But the credit squeeze means there are hardly any new CLOs to absorb the current loans on offer, so it’s only the bank-sponsored UFOs that can snap up these loans.

It’s like selling your house and giving the buyer the financing. Have you really offloaded it, and is the price a real market price?

These UFOs are not a reflection of real demand driving improving leveraged loan prices.

These new vehicles being created in a stagnant market are merely a stealthy way of financially-engineering the burden of costly risk away from the bank.

It all looks a bit like a close encounter with the wrong kind. Another leveraged solution to an already leveraged problem isn’t a way out of the credit crunch.

> AMEN!