2014

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 Final REG AB Rules: Man Bites Dog

I’m getting pretty annoyed at the calumny heaped upon “complexity.”  Everyone wants to “hit the ball down the middle of the fairway”; “keep it simple, stupid”;  “Stick to the knitting…”; “Plain vanilla only, please.”  Don’t do anything not in the precedent.  Oh, please.  Okay, I’ll admit I’m talking my book here, but this is an inapposite choice of chief villain for the little morality play called “What Went Wrong.” 

There were plenty of dumb things done in the capital markets before the Late Unpleasantness.  There were indeed some deals and structures that could not be easily understood.  There were some bad choices made about, shall we call them, “opportunities” presented by the application of super complex rating criteria.  Then, of course, complex machinery was sometimes left in the hands of those ill equipped to manage it. 
Continue Reading Complexity Is Not The Enemy

We at Crunched Credit have taken a bit of a pause of late.  It is, of course, the dog days of summer.  But it’s time to get back into the fray.  Let’s start by noting the doldrums seem to have taken a pass.  From where we sit, the markets seem to be in robust health.  As we look over this complex web of transactions, deal structures, innovations, capital flows, business plans, business goals, failures and successes that is our market, things look pretty damn good.
Continue Reading A Mid-Year Report Card on the Commercial Real Estate Capital Markets

New York will again play host to CREFC’s annual conference, and over 800 of our colleagues are scheduled to attend. The conference begins next Monday with a slate of forums discussing current issues relating to high yield distressed real estate assets, portfolio lending, GSE multifamily lending, investment grade bonds, B-pieces, issuers and servicers.
Continue Reading CREFC Annual Conference 2014 Preview

Moody’s published a piece the other week that analogized credit quality in the CRE capital markets to the boiling frog – that if you put a frog in cold water and slowly raise the temperature, it never jumps out until it, pardon the pun, croaks.  Tad, please tell me you never actually tried that in your youth.  I may have done some things as a 12 year old that might have led to questions about whether I was entirely well adjusted, but I never boiled a frog.  Do we know that it even works?  What a great MythBusters episode.  PETA would have a fit. 
Continue Reading Ribbet – The Green Cassandra of the Capital Markets

Long ago and far away, a radio show gave birth to the catchphrase “Who know what evil lurks in the hearts and minds of men?  The Shadow knows.”  I think, although I’m not entirely certain at this point, that the Shadow was a good guy, but deeply misunderstood and viewed with enormous suspicion by more main stream enforcers of right thinking and morality.  Shadows are where bad things happen, where the bad guy hides and jumps out when the teenage starlet inevitably walks into the darkened derelict house, saying in a little voice, “Hello, hello?  Billy, are you there?”  Bad things inevitably ensue.  Shadows are bad.

Okay, what’s this all about?  We need to stop the narrative right now that all financial market participants; funds, specialty finance companies, advisors, BDCs, etc., which are not insured depository institutions (let’s call them non-banks for short) are creatures of the shadows.  Shadows are bad, non-banks are in the shadows…ok, you get the picture.  Our traditional banks, which take deposits guaranteed by the US of A are under the loving and protective wing of the FDIC, the Federal Reserve or the Office of the Comptroller of the Currency (and yes dear Lord, the FSOC).  That makes sense, they take Caesar’s coin and Caesar is entitled to a bit of supervision.  But the non-banks do not; they risk private capital.  That makes a difference.
Continue Reading The Shadow: What’s in a Name – The Maleficence of Shadow Banking

A few steps forward and a giant leap back.  This familiar phrase might be the perfect summary of the CLO market’s Volcker Rule roller coaster since December 2013.  A few weeks ago we wrote about the Federal Reserve Board’s (the “Fed”) less than satisfying “fix” to address what the market has perceived as one of the Volcker Rule’s unintended consequences.  The Fed, in what had seemed to be an honest (although insufficient) attempt to prevent the need for banks to divest of holdings in CLO 1.0 transactions, agreed to provide two 1-year Volcker Rule conformance extension periods.  As extended, the conformance periods will expire in mid-2017.
Continue Reading Fed Issues Additional Guidance on Extended Conformance Period – Be Careful What You Ask For