Are we safe from sub-prime contagion? For the moment. At least in terms of the unadulterated fear punishing credits of all sorts. It appears that the Fed's actions have had a significant calming effect on the market, as the last couple days have witnessed orderly trading in the credit markets.
So now the real trick is to find the opportunities. The following is a quick list of some housing/sub-prime related names and where the CDS is trading currently.
- Bank of America: CDS = +35, Ratings = Aa1/AA, recently made a $2 billion investment in Countrywide.
- HSBC: +52, Aa2/AA-, one of the first large banks to do a significant sub-prime related write down.
- Goldman Sachs: +65, Aa3/AA-, large underwriter of CDO/MBS/everything else, but not especially hit by sub-prime problem.
- PMI: +90, A1/A, provider of mortgage insurance.
- Washington Mutual: +90, A2/A-, well-known mortgage originator, especially on West Coast, also has traditional bank operations.
- Capital One: +95, A3/BBB+, credit card issuer, particular within lower income bracket.
- Lehman Brothers: +105, A1/A+, operated a sub-prime originator, which was recently shuttered.
- Bear Stearns: +115, A1/A+, suffered through some high-profile hedge fund failures.
- MBIA: +125, Aa2/AA (corporate rating, insurance sub rated Aaa/AAA), insured some sub-prime/CDO deals.
- H&R Block: +170, NR/BBB+ (neg. watch), owns a sub-prime lending unit, rumored to be a LBO candidate, going through a proxy battle.
- Countrywide: +200, Baa3/A- (neg. watch with both), you know this story.
- CIT Group: +200, A2/A, owns a home mortgage unit, viewed as possible takeover candidate ala SLM Corp.
- Centex: +245, Baa2/BBB, large home builder.
- GMAC: +545, Ba1/BB+, obviously have their own problems, but also exposed to consumer credit.
- General Motors: +720, Caa1/B-, for perspective.
- Residential Capital: +1000? (trading with points up front), Ba1 (neg. watch)/BBB-, former mortgage arm of GMAC.
For some additional perspective, here are the 3 largest non-finance IG issuers:
- Verizon: +25, A3/A
- Comcast: +41, Baa2/BBB+
- Sprint Nextel: +46, Baa3/BBB
They are ordered from tightest to widest, but is this order of things correct? Are the tightest names really the safest? Are the widest names really most likely to go bankrupt? Feel free to post your own thoughts in the comments, I'll post my opinion in a day or two.