Merrill Lynched CDO & Muni Bonds
In an effort to reduce its risk exposure and shore up its balance sheet...
Merrill Lynch is selling $30.6 billion U.S. CDOs for only $6.7 billion or $0.22 on the dollar.
Merrill will have a $5.7 billion hit from selling the collateralized debt obligations to the Lone Star Funds investment firm at about 22 cents on the dollar.
Merrill also raised $8.55 billion in a common stock offering at $22.50 per share, making the sale extremely dilutive for existing shareholders.
Merrill has taken $51.8 billion in write-downs and credit losses since the credit market turmoil began last year -- second only to Citigroup's $54.6 billion.
Hint Hint: The same type of securities are valued at about 55 cents on "Silly"group's books.
Bringing the valuation into line with Merrill's would imply a $16.2 billion writedown and about a $2 per share reduction in earnings for Citigroup.
Interesting Codicil: Finance went up 7.5% today, however, one stock declined, XL Capital announced a dilutive capital raise...
XL Capital said it will seek to raise capital and pay XL Capital Assurance, SCA's bond insurance unit, $1.9 billion to end any obligations to the company.
XL's payment to Security Capital will reduce Q3 earnings by as much as $1.5 billion, the insurer said. XL is cutting its quarterly dividend in half to 19 cents a share.
Say What?? SCA also agreed to pay Merrill Lynch $500 million in cash to cancel...
$3.7 billion of contracts guaranteeing the repayment of collateralized debt obligations, or CDOs, backed by subprime mortgages.
The Nattering One muses... lets see now... Citigroup values their CDO at 0.55 cents;
Merrill sells their CDO at 0.22 cents; and TEARS UP SCA's CDO's at 0.13 cents on the dollar??? So lets follow the money and the ratings...
XL holds more than 40% of Security Capital shares and will turn over the stake as part of the agreement.
So that $1.9 billion XL paid SCA gets XL OFF THE HOOK for SCA's bond coverage.
How big of a hook? SCA has backed $155 billion of bonds, including securities issued by cities, states and school districts.
Fitch downgraded the insurers six levels to CCC from BB ahead of the completion of the deal, however, noting there was a risk the transaction may not go through.
That may cause regulators to take over the insurers and result in a D financial strength credit rating.
If SCA's deal with Merrill is completed, its insurance units...
XL Capital Assurance and Bermuda-regulated reinsurer XL Financial Assurance, may be upgraded several levels.
That would save the bond insurers from insolvency and the $155 billion municipal bonds from a D rating.
Imagine what a failure on this deal would do to the cost of insuring those muni bonds?
Keep your eyes on this name brand, as it could pancake several other players.
Merrill Lynch is selling $30.6 billion U.S. CDOs for only $6.7 billion or $0.22 on the dollar.
Merrill will have a $5.7 billion hit from selling the collateralized debt obligations to the Lone Star Funds investment firm at about 22 cents on the dollar.
Merrill also raised $8.55 billion in a common stock offering at $22.50 per share, making the sale extremely dilutive for existing shareholders.
Merrill has taken $51.8 billion in write-downs and credit losses since the credit market turmoil began last year -- second only to Citigroup's $54.6 billion.
Hint Hint: The same type of securities are valued at about 55 cents on "Silly"group's books.
Bringing the valuation into line with Merrill's would imply a $16.2 billion writedown and about a $2 per share reduction in earnings for Citigroup.
Interesting Codicil: Finance went up 7.5% today, however, one stock declined, XL Capital announced a dilutive capital raise...
XL Capital said it will seek to raise capital and pay XL Capital Assurance, SCA's bond insurance unit, $1.9 billion to end any obligations to the company.
XL's payment to Security Capital will reduce Q3 earnings by as much as $1.5 billion, the insurer said. XL is cutting its quarterly dividend in half to 19 cents a share.
Say What?? SCA also agreed to pay Merrill Lynch $500 million in cash to cancel...
$3.7 billion of contracts guaranteeing the repayment of collateralized debt obligations, or CDOs, backed by subprime mortgages.
The Nattering One muses... lets see now... Citigroup values their CDO at 0.55 cents;
Merrill sells their CDO at 0.22 cents; and TEARS UP SCA's CDO's at 0.13 cents on the dollar??? So lets follow the money and the ratings...
XL holds more than 40% of Security Capital shares and will turn over the stake as part of the agreement.
So that $1.9 billion XL paid SCA gets XL OFF THE HOOK for SCA's bond coverage.
How big of a hook? SCA has backed $155 billion of bonds, including securities issued by cities, states and school districts.
Fitch downgraded the insurers six levels to CCC from BB ahead of the completion of the deal, however, noting there was a risk the transaction may not go through.
That may cause regulators to take over the insurers and result in a D financial strength credit rating.
If SCA's deal with Merrill is completed, its insurance units...
XL Capital Assurance and Bermuda-regulated reinsurer XL Financial Assurance, may be upgraded several levels.
That would save the bond insurers from insolvency and the $155 billion municipal bonds from a D rating.
Imagine what a failure on this deal would do to the cost of insuring those muni bonds?
Keep your eyes on this name brand, as it could pancake several other players.
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