- I don't understand CIT's new filing. They boosted their offer for anyone delivering by the end of the month, but they also said they "don't intend" to file for bankruptcy if the tender succeeds. That's what's strange to me. Did someone think they did intend to file for bankruptcy? I mean, I'd think they'd only include a statement like that because one or more large bond holders had that concern. We know CIT might wind up having to declare anyway if circumstances go against them. They can't promise they won't have to file. But obviously you only try the tender in an attempt to avoid bankruptcy. Right? Am I missing something here?
- Becky Quick and Warren Buffett. BFF or Friends with Benefits?
- I can't believe stocks were about flat after Microsoft's ugly report, then fell when consumer confidence came out. Consumer confidence is the most worthless statistic that the media just laps up. Look at what consumers are doing not what they say.
- Eurodollar futures showing a Fed hike in January. Not going to happen. This is just like 2001-2002 when everyone thought there would be a hike sometime in the next 3-4 months and it kept never coming. Investors in the belly crushed investors in the front end.
- The fact that Treasury's can't catch a bid here with with stocks down over 1% is a pretty bearish sign, especially with heavy supply next week. I also think sentiment around the auctions is more sanguine, setting us up for
We used to have fun commenting about the bond market, including Treasuries, Mortgages, Municipals, and Corporates. But that was before the dark times. Before deleveraging. Contact the Author: accruedint at gmail.com
Friday, July 24, 2009
Clumsy and Random Thoughts
11 comments:
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The bondholders of CIT now effectively control the company. They have secured all of the unemcumbered assets and more or less mgmt must request their permission to make any asset sales. BK of a financial firm only works, if their is a real plan in place prior to fileing. When Lehman had a non-prepackaged BK, value disappeared like an ice cube in the sun. I think that the tender is just to give the bondholders until Nov to orcastrate a true re-org.
ReplyDeleteI think the answer can be found in the CIT CDS swaps and which respective party's interests are involved.
ReplyDeleteWhy do you think ED futures are pricing in a hike in January? I don't necessarily see that. I might be doing my math wrong, but ED futures are just slightly ahead of what I see in the FF futures, and that discrepancy could be attributed to other things, as that ED/FF basis has been pretty volatile over the past couple years.
ReplyDeleteWith ED... what I do is look at the current 3-mo LIBOR, then look at the forward ED. So like 1/26/10 to 4/26/10 would be ED's estimate on 3-mo rates on Jan 26. Currently we're at 0.50%, Jan 26 shows 0.88%.
ReplyDeleteI don't actually trade ED but I'm not worried about drilling this down to the last 0.01. If January is supposed to be 38bps higher, then you are getting paid to roll out the curve.
Cool, thanks for following up. I was looking at it a bit differently and comparing it against FF Futures, so I didn't have a statistically significant discrepancy because it has not been trading normally (really, what has). ED vs 3mo Libor is a better comp in this case.
ReplyDeleteI can't claim credit for this thought about CIT, Buffett talked about it earlier today.
ReplyDeleteThere's no way for the company to compete with their cost of funds against government supported institutions. It's a liablilty problem for which there is no solution and the business properly needs to be assumed by an entity with access to much lower cost financing.
On CIT, I think the large holders are taking as much flesh as they can ($300mm) before chapter 11. Assuming the tender for the Aug 09 bonds is successful, the next step will be a coercive exchange offer for longer dated bonds. Even if it succeeds, it probably will not lower their interest expense. It will have to decrease the face value by enough to attract future lenders at much lower rates. Otherwise, Tom is correct that the business model just doesn't work. I think it's likely they will file before their next major maturities early next year.
ReplyDeleteI've had that question about Becky and Buffett, too. She'd be much happier with me than that dinosaur.
ReplyDeleteI wrote last week that I thought CIT was a dead model. I'm just saying, it seems that if you are doing a bond tender, the goal is obviously avoiding bankruptcy. CIT saying they don't intend to file wouldn't give me any comfort either way. But I assume some bond holder wanted them to come out and say it. Its strange.
ReplyDelete"setting us up for..." What? That last bullet point is missing some vital data!
ReplyDeleteIs anyone else surprised that with all the talk of inflation and rising rates that the gold price is still not back above $1,000, as shown by Gold Price
ReplyDelete