Author Archive

• Assuming Responsibility, or What You Will
  Ratings Reform, PF2 | January 15th, 2010 at 7:29 am

  

  The justification is regularly put forth that greed was a major cause of the financial crisis. While this may or may not be true, it begs the question: is greed new? If people have always been greedy, why didn’t this crisis occur earlier? One answer is that several minor crises did occur earlier, due to greed: we simply didn’t notice because they weren’t big enough, meaningful enough to grab our attention.

  read more...

• A Centralized Solution: Securitization, Rating Agencies, and the Path to Meaningful Reform
  Ratings Reform, PF2 | January 12th, 2010 at 3:31 pm

  

  The financial crisis has brought to the fore, and indeed accentuated, the inadequacy of both regulatory bodies and our efforts to measure and mitigate risk throughout the financial system—particularly within the realm of structured finance, or securitization.

  read more...

• “Gaming” the Ratings System, or the Observer Effect
  Ratings Reform, PF2 | January 8th, 2010 at 12:06 pm

  

  A too literal interpretation of Occam’s razor might encourage one to believe that the rating agencies miscalculated the credit risks inherent in residential mortgaged-backed securities (RMBS) simply because they chose not to accurately analyze their underlying mortgages – often subprime mortgages. We may conjecture they had insufficient data to support their home price assumptions, which allowed only for appreciation. We’ll possibly argue they lacked the expertise to evaluate this complex asset class: that their effective credit ratings oligopoly allowed them to circumvent paying for the resources necessary to estimate the mortgage payoff streams. We might even go so far as to suggest that they knowingly provided the incorrect ratings in order to appease the issuers who were paying them, as a function of the heavily criticized issuer-pay model.

  read more...

• Historical Assumptions or Random Guesses
  Ratings Reform, PF2 | December 11th, 2009 at 9:28 am

  

  Jeremy Warner’s article in this morning’s Telegraph is probably neither astonishing nor ground-breaking in its revelation: that nothing has really changed with respect to the rating agencies.

  read more...

• Marathon, or Just a Quickie?
  Ratings Reform, PF2 | November 10th, 2009 at 10:43 am

  

  Friday’s Asset-Backed Alert describes the (mildly fascinating) behind-the-scenes activities of Marathon CLO I, a 2005-vintage CLO managed by Marathon Asset Management.

  read more...

• Piercing the Securitization
  Ratings Reform, PF2 | November 6th, 2009 at 12:00 pm

  

  Wells Fargo is cursing the day it agreed to act as trustee on the Tropic and the Soloso TruPS CDO series...

  For those not following, TPG found a loophole in the deal docs which allows it to cherry pick assets directly out of the CDO's portfolio, at ridiculously discounted prices, if 66.66+% of the CDO’s equity agrees to it.

  read more...

• The Imperfect Hedge
  Ratings Reform, PF2 | November 2nd, 2009 at 8:19 am

  

  The outlook continues to be bleak for trust preferred securities CDOs (TruPS CDOs).

  read more...

• “and yes I said yes I will Yes.”
  Ratings Reform, PF2 | October 29th, 2009 at 11:05 am

  

  The Wall Street Journal reports this morning that Dallas-based Highland Capital is putting together three CDO deals backed by corporate loans, one of which “will have no credit ratings at all.”

  read more...

• Anatomy of a Recovery
  Ratings Reform, PF2 | October 12th, 2009 at 4:18 pm

  

  Leveraged loans have now rallied for 9 consecutive months on the back of a perceived general economic recovery – or lower probability of total collapse - and the heightened availability of refinancing and loan modification options for the borrowers.

  read more...

• Rating Agency Legal Liability Standards
  Ratings Reform, PF2 | September 29th, 2009 at 3:02 pm

  

  Here follows PF2 Director Mark Froeba's written response to one of Senator Bennett's follow-up questions from the August 5th hearing on "Examining Proposals to Enhance the Regulation of Credit Rating Agencies."

  read more...

• Rating Agencies: The More the Moroser
  Ratings Reform, PF2 | September 24th, 2009 at 5:20 pm

  

  It turns out I couldn't find a better antonym for "merrier" than "moroser."

  But it is a grave and serious (both suggested antonyms) issue we're approaching today: the regulators' and market participants' aim to foster competition in the credit rating agency market. Just yesterday, various market participants and reporters expressed great delight at the NAIC's ruling to allow Realpoint LLC to rate portfolios of commercial mortgage-backed securities. (Separately, the NAIC is purportedly considering the viability of creating their own, not-for-profit rating agency.)

  read more...

• Step 1: Rating Agency Reform
  Ratings Reform, PF2 | September 15th, 2009 at 8:29 am

  

  Anybody who’s seen the movie Charlie Wilson’s War will appreciate the fact that signs of economic improvement doesn’t mean we can take our foot off the peddle.

  read more...

• The CLO Also Rises
  Ratings Reform, PF2 | August 25th, 2009 at 1:52 pm

  

  The May/June rally and subsequent stabilization of CLO tranche values has shown us that despite times of deep distress, culminating in loan downgrades and defaults, CLO managers on average have been at least temporarily able to build OC coverage. In sum, the par they were able to gain by way of their discount purchases, together with loan price appreciation and the ability to offload certain CCC assets, served as a greater combined force than the dual impositions of portfolio downgrades and defaults.

  read more...

• For Whom the Capital Flows
  Ratings Reform, PF2 | August 19th, 2009 at 12:40 pm

  

  Thanks to some data mining on Bloomberg, we were able to put together a chart showing the slowing participation by U.S. banks in the Treasury's Capital Purchase Program.

  read more...