’s 5th Annual Golden Turkey Awards

This is our fifth annual Golden Turkey Awards at CrunchedCredit.  It just gets easier and easier. There are simply so many worthy contenders for an award this year.  You know, we don’t stop and take a moment often enough to just say thank you to our government and its enormous regulatory apparatus for being such a reliable source of material for us.  We read in awe at the breathtaking nonsense often emanating from our elected panjandrums and their regulatory cohorts and enabling self-appointed policy elites.  I’m so appreciative of the studied, surely serious, perhaps well meaning, ham handed and ultimately self-defeating efforts of our government to micromanage economic outcomes.  We here at CrunchedCredit spend a fair amount of time talking to the aforesaid.  The poverty of understanding about how financial markets work is really stunning.  You have to admire the willingness of our government, marinated in hubris, to weigh in, chest out and chin high on so many issues above their intellectual fighting weight.  So let me take this moment to just say thanks.

But, of course, what makes our life as card-carrying members of the commentariat good, makes the life of those trying to actually conduct business in this regulatory free fire zone excruciatingly difficult.  Our job is calling B.S., sussing out the inanity, stripping away the syntactic chaff behind or within which much regulatory product is hidden and trying to provide some helpful guidance about how to deal with this increasingly complex world along the way.  Not to diminish that getting our fiscal and monetary policy right is a deadly serious business, but we can’t help but find some humor in all this.

So, here it is – our Golden Turkey Awards for 2014.

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“First” Deeds of Trust now Second in Line?

Never a dull moment.  We at Crunched Credit are probably guilty of excess and perhaps myopic focus on our federal government and its regulatory apparatus; it is such a consistently reliable source of commentary and outrage.  So here’s one out of left field, but no less important for that.  Continue Reading

The Continuing European Banking Crisis and Hidden Capital Shortfalls

Who says that Europeans don’t get Halloween?  After more than a year in the making, the European Central Bank (“ECB”) just finished its most recent stress test and found that pretty much everything was kinda OK.  Sure, a few banks here and there in the nether regions flunked, but perhaps with the exception of that most wonderful Banca Monte dei Paschi di Siena, no one flunked that badly.
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Risk Retention and Stockholm Syndrome

After three years of waiting, we now have our Risk Retention Rule.  All six of the Agencies responsible for the Rule – the FDIC, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Department of Housing and Urban Development, the Federal Housing Finance Agency and the SEC – have finally managed to agree, albeit with significant dissent at the FDIC and the SEC, on a Final Rule.  Note that Richard Cordray of the Congregation for the Doctrine of the Faith (in Progressive Causes) …er…the Consumer Financial Protection Bureau, apparently had a heavy finger on the scales, which is why there was material dissent at the FDIC and SEC.  So, after all those years of waiting, we have “it.”  “It” of course is another five hundred some odd pages of commentary and bloviating and a relatively few pages of actual Rule which, as we study it more, will inevitably have left much that will need to be subsequently clarified.  We have already found technical inconsistencies between the commentary and the Rule.  Continue Reading

PACE Yourself

Property Assessed Clean Energy (PACE) loans allow property owners to finance clean energy improvements to their properties generally secured by property liens senior to mortgages through tax assessments.  Moody’s recently released a special comment expressing some concerns and not-so-subtle hints that it thinks that lenders and securitizers should take PACE programs seriously. Continue Reading

Securitization in the Sand – ABS East Turns Twenty

By: Daniel Wohlberg and Sean Solis

On Sunday, September 21st through Tuesday, September 23rd, almost 3,500 industry insiders descended upon Miami Beach for the 20th annual ABS East Conference at the acclaimed Fontainebleau Hotel. The enthusiasm and excitement was palpable considering the record setting year the market had so far, especially in the CLO space.  The general tenor was cautious optimism as many believe the roaring market would continue for the next few years, but saving a bit of hesitation for some of the regulatory pitfalls up ahead.  Most were comfortable, however, considering the market’s resilience in dealing with the recent implementation of the Volcker Rule.

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The Grand Illusion: A Strategy

Have you heard the following thought expressed recently in one way or the another, “I’m less worried about what new black swans might swim onto our screens and more worried that we will just wake up one day, peer out of our bunker of habituated indifferences to the drumbeat of troubling news and decide, suddenly, that things actually are terrible!”  Bad news seems to pile upon bad news in the larger world.  We are off the map of the known universe in terms of monetary and fiscal norms, and yet when the last worse headline comes across the ticker, and the newsreaders do their level best to create drama, the debt and equity markets seem to, well, yawn.  What happens if one day we wake up and all of a sudden all that which was benign yesterday is terrible today?  It’s like one of those sci-fi movies where the doughy earthlings encounter a race of beautiful, peaceful people and then, in a blink, see them as the multi-arm, walking crustaceans with eyes on stalks and a distinct preference for space hero tapas that they really are.  Continue Reading

CLO Market Update: S&P Recovery Ratings, More’s the Merrier

While leveraged loan ETF and money market funds face an unsteady near-term future amidst ongoing retail investor outflow, the CLO market is rolling towards its busiest year ever.  With year-to-date global issuance at approximately $98 billion (with $89 billion or so in the U.S. alone) as of mid-September, many market commentators see $125 billion in total U.S. CLO issuance by year-end as a real possibility.  Recent reports calculate that CLOs accounted for nearly 60% of new issue institutional leveraged loan demand in the first half of 2014.  As new collateral managers continue to enter the market and the industry has recovered from the Volcker Rule chill of mid-winter, market actors are now preparing to deal with the challenges that the forthcoming U.S. risk retention rules will inevitably present.

With all of the above news dominating the CLO headlines, some market observers may have missed a less heralded development in the CLO market, which is very likely to have an impact on both the CLO market and the leveraged loan market.  On August 1, 2014, S&P released an updated CLO rating methodology that provides for a more nuanced classification of recovery assumptions related to the assets acquired by CLOs.  The challenges and opportunities presented by the updated S&P methodology are worthy of attention. Continue Reading

Liquidity Coverage Ratio Rule: Birds Gotta Fly, Fish Gotta Swim…and Regulators Gotta Regulate

With apologies to Jerome Kern and Oscar Hammerstein, and in the afterglow of a relatively amiable final AB Rule, we are reminded this week that our business remains hogtied to a regulatory establishment that can’t seem to stop regulating.  When a member of the regulatory apparatchiki hears someone observe, “Well, if I don’t get out of bed, I’ll never be in a car accident,” he or she starts thinking, well, maybe…a nice little rule could do wonders…! Continue Reading

Final REG AB Rules: Man Bites Dog

I am congenitally pessimistic and some have, shockingly, called me cynical. Early last week, while we waited for Reg AB, I would have bet more than a dollar that there would have been a number of things in this final Rule which would disappoint.

Well, I was broadly wrong. The Rule as published, with its commentary (nearly 700 pages) is frankly… just not bad. Having been through it for a first go (and it is a slog) it is more notable for what it doesn’t do, than for what it does. It does not extend Reg AB to the 144A market as was suggested by the republished preliminary rule from 2011. It does not include the whacky waterfall computation program from that prior missive. It does not require all the transaction documents to be filed by the date of the preliminary prospectus. It does not impose its own bespoke version of risk retention as a condition to shelf registration. It does not turn some poor bastard who happens to be the CEO of the depositor into a guarantor of the success of the offering, and it does not continually reset a five-day pre-pricing requirement for the delivery of the final prospectus supplement when any late deal change occur. Continue Reading