by Calculated Risk on 7/17/2007 12:39:00 AM

Earlier today, Brian and I were discussing the cancelled debt syndication for the KKR acquisition of Dutch retailer Maxeda BV.

Kohlberg Kravis Roberts & Co. canceled plans to raise 1 billion euros ($1.4 billion) of loans for Dutch retailer Maxeda BV as investors shun high-yield debt.

More than 20 financing deals have been postponed or restructured in the past three weeks as losses from the U.S. subprime mortgage rout rattled investor confidence.

The key point is that the acquisition is still going forward, but the bridge loan from Citigroup and ABN Amro is now a "pier" loan; i.e. a bridge to nowhere.

Bloomberg expands on this point: Goldman, JPMorgan Stuck With Debt They Can't Sell to Investors (hat tip PC)

Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of Wall Street are stuck with at least $11 billion of loans and bonds they can't readily sell.

The banks have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month ... The cost of tying up their own capital may curb earnings and stem the flood of LBOs ... the five largest U.S. investment banks more than tripled their lending commitments to non-investment grade borrowers during the past year to $174 billion, according to their regulatory filings.

Just three of the 40 biggest pending LBOs have an escape clause that lets the buyer back out if funding can't be arranged, said Mike Belin, U.S. head of equity derivatives strategy at Deutsche Bank AG in New York. A couple of years ago, a majority of deals included a financing contingency ...

This reminds us of the Burning Bed incident mentioned in the Bloomberg article, and also in the WSJ in May:

In a famous event dubbed the "Burning Bed," First Boston Corp. in 1989 made a $457 million bridge loan to the purchasers of Ohio Mattress. When the junk-bond market collapsed soon afterward, First Boston couldn't refinance the loan and ended up owning most of Ohio Mattress. Credit Suisse had to inject additional capital into First Boston, culminating in a full takeover.

Even adjusted for inflation, $457 Million is chump change compared to the current commitments of the five largest U.S. investment banks.

by Calculated Risk on 7/16/2007 06:24:00 PM

Barry has the "very ominous charts".

Update: From Bloomberg: ACA Shares Fall 22 Percent on Subprime Debt Holdings (hat tip jim)

ACA Capital Holdings Inc. ... disclosed that it could lose money on contracts tied to $4.5 billion of subprime mortgage securities from 2006 and 2007.
...
ACA wrote contracts that represented AAA rated pieces of so-called collateralized debt obligations made up of derivative versions of subprime bonds. CDOs package securities such as mortgage bonds, then parcel them out to investors in different slices with different credit ratings. It was part of $15.3 billion total to CDOs of mortgage bonds. ACA also wrote contracts on $400 million in exposure to a CDO of CDO bonds, compared with $911 million of adjusted book value.
...
ACA was the eighth-largest manager of CDOs made up of asset-backed debt or related derivatives on Dec. 31, overseeing 12 vehicles that had issued $10.4 billion in securities, according to Standard & Poor's. Moody's Investors Service said July 11 that it may cut $5 billion of such securities; the firm and rival S&P last week downgraded billions of the underlying bonds.

I don't know if this is related.

by Calculated Risk on 7/16/2007 05:31:00 PM

Try it out: Cyberhomes.com

by Anonymous on 7/16/2007 01:08:00 PM

We were just talking about getting our stories straight, and what should appear (thanks, Brian!):

This year we’ve put up a valiant fight! One with integrity, dignity and never wavering determination, focused solely on how to succeed. We have reached out to everyone we know, and many that we don’t know, to tell our story, of how we have made it this far, of the expertise and skills that we have, of the quality of our organization, and of how we have refused to lose! We have received tremendous support and loyalty from our employees and business partners during this year’s extreme conditions. So many individuals and companies have believed in us and cheered us on as we’ve dodged the obstacles thrown in our path, obstacles that many others were unable to overcome. We have had extraordinary support from our ownership and Board of Directors. They have acted unselfishly, putting the company, its employees and creditors first and foremost. They are honorable people whom I highly respect.

Unfortunately the latest market was more than we were able to overcome. We have exhausted our resources and do not have the means to move forward. Therefore, it is with great sadness that I announce that we have ceased operations as of today, July 13th.

If that left you a little breathless, here's DJ Newswire's somewhat more restrained take:

Residential mortgage lender Alliance Bancorp has filed for Chapter 7 bankruptcy and will liquidate its assets. . . . Alliance Bancorp, formerly United Financial Mortgage Corp., specialized in lending to so-called Alt-A borrowers - mortgage borrowers with credit between those of prime and subprime borrowers.

I can't wait to find out what the "obstacles thrown in their path" were . . .

by Calculated Risk on 7/16/2007 12:12:00 PM

The FDIC is hosting an advisory committee meeting today: The Subprime Mortgage Situation - How Did We Get Here and What Can We Do?

If anyone sees any comments or quotes, please post them. Meanwhile a little Talking Heads:

by Anonymous on 7/16/2007 11:00:00 AM

You can't make stuff like this up. Well, OK, you can make stuff like this up, but you can't keep from snorting coffee through your nasal passages when you read it. From Securitization.net, "Subprime Downgrades Sideline ABS Issuance":

The asset securitization market usually does not stop issuing new deals for any reason, except perhaps the usual holiday breaks. After enduring several days of downgrades on subprime MBS by Moody's Investors Service, and warnings of more from Standard & Poor's, however, the ABS market largely decided to hold back from issuing new debt last week.

Except for our occasional visits to our second homes on Martha's Vinyard, we've never seen a good reason to stop issuing new deals. It took downgrades from the rating agencies to make us quit for a minute.

Initially stunned by the news, the ABS market drove the ABX indices to new lows and pushed spreads wider, according to market observers. Prices on the double-A tranche of ABX 2006-2 and 2007-1 fell three and four basis points, respectively, according to Credit Suisse. The triple-B prices had already dropped around two and three basis points over the past two weeks, respectively, and Wednesday's news only forced them to trade down further. The ABX 2007-1's triple-B-minus tranche breached the $50 point, when it traded at $49, said Credit Suisse.

Stunned, I tell you. We were totally blindsided here. We've never had to stop doing deals before.

"No one is surprised by it," one sell-side professional said. "People are very upset at the rating agencies, that they misjudged things as badly as they did."

OK, well, you see, "stunned" isn't the same thing as "surprised." See, us insiders knew a long time ago that this stuff was pretty squirrelly, but by God we weren't going to stop issuing more of it until the rating agencies told us what we already knew. It's not like we're going to do anything based on our own analysis.

Frequent MBS issuer C-BASS was planning to come to market with a $433 million transaction, but the latest news from the rating agencies appeared to have affected pricing on those bonds already. The triple-A rated tranches were getting price talk at 12 basis points over the one-month Libor for the bonds with two-year durations. Pricing was as wide as 34 basis points on the six-year triple-As. As for the deal's four-year triple-B tranches, pricing talk ranged from 300 basis points to 750 basis points.

"We're guessing that the mortgage guys are sitting on their hands," said one market source, noting that most deals that were expected to price last week would probably come from overseas.

I'm more inclined to think that there are a couple of "mortgage guys" who are sitting on some uncomfortable chairs in some upper-floor conference rooms across from some accounting guys who have that look on their sour little faces, myself, but by all means let them claim to be sitting on their hands if that's what they have to do to reassure their little account-holders.

How can you recognize a major market shift? Nobody can quite get their stories straight. Everybody was shocked by the rating agencies, but everybody is mad at them because everybody knew all along that this was coming. Everybody knows that the stuff hasn't even been downgraded enough, but everybody's shocked over the spreads on new deals of the same caliber. Clearly it's going to take a while before we figure out how to reconcile our wounded innocence with our seasoned vigilance. Stay tuned.