Good Afternoon ,
In the aftermath of the Grandslam weekend , the two corporate stories in Ireland were about McInerney Homes and about Independent News and Media.
McInerneys are due to come and talk to us after them market closes. It is a story which relies more now on market conditions not deteriorating from here , frankly it is difficult to see that there is much of a play for equity investors at this point and that is reflected in the continued slide of the shareprice to 9c.
INM slipped out an announcement on Friday which announced the appointment o brokers to engage with the bond holders as the efforts to refinance the bond which falls due in May have been abandoned. We have see the power shift on the Board to Denis O’Brien. The Bond holders will be reluctant to re-negotiate terms which will put them at any disadvantage in terms o their ranking for re-payment and with a 400m re financing due next year after this 200m one , the pressure is now really on.
Ryanair continued to feel the pressure today , it has been prey to nearly continuous selling pressure for a couple of weeks now and while the stock looks very cheap , it really is stuck in the mire at this point.
Elsewhere it was all about The US Treasury secretary new bank bailout plan. The markets are very excited about this one.
The following is from the Treasury release itself about how it will work. (Very clearly , this is a good deal lfor the banks and encourages risk taking with downside protection and leveraged sharing of upside)
• The Process for Purchasing Assets Through The Legacy Loans Program: Purchasing assets in the Legacy Loans Program will occur through the following process:
o Banks Identify the Assets They Wish to Sell: To start the process, banks will decide which assets – usually a pool of loans – they would like to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio. Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets.
o Pools Are Auctioned Off to the Highest Bidder: The FDIC will conduct an auction for these pools of loans. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase.
o Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.
o Private Sector Partners Manage the Assets:Once the assets have been sold, private fund managers will control and manage the
The Legacy Securities Program: The goal of this program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit. The resulting process of price discovery will also reduce the uncertainty surrounding the financial institutions holding these securities, potentially enabling them to raise new private capital. The Legacy Securities Program consists of two related parts designed to draw private capital into these markets by providing debt financing from the Federal Reserve under the Term Asset-Backed Securities Loan Facility (TALF) and through matching private capital raised for dedicated funds targeting legacy securities.
1. Expanding TALF to Legacy Securities to Bring Private Investors Back into the Market: The Treasury and the Federal Reserve are today announcing their plans to create a lending program that will address the broken markets for securities tied to residential and commercial real estate and consumer credit. The intention is to incorporate this program into the previously announced Term Asset-Backed Securities Facility (TALF).
o Providing Investors Greater Confidence to Purchase Legacy Assets:As with securitizations backed by new originations of consumer and business credit already included in the TALF, we expect that the provision of leverage through this program will give investors greater confidence to purchase these assets, thus increasing market liquidity.
o Funding Purchase of Legacy Securities: Through this new program, non-recourse loans will be made available to investors to fund purchases of legacy securitization assets. Eligible assets are expected to include certain non-agency residential mortgage backed securities (RMBS) that were originally rated AAA and outstanding commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) that are rated AAA.
o Working with Market Participants: Borrowers will need to meet eligibility criteria. Haircuts will be determined at a later date and will reflect the riskiness of the assets provided as collateral. Lending rates, minimum loan sizes, and loan durations have not been determined. These and other terms of the programs will be informed by discussions with market participants. However, the Federal Reserve is working to ensure that the duration of these loans takes into account the duration of the underlying assets.
2. Partnering Side-by-Side with Private Investors in Legacy Securities Investment Funds: Treasury will make co-investment/leverage available to partner with private capital providers to immediately support the market for legacy mortgage- and asset-backed securities originated prior to 2009 with a rating of AAA at origination.
Side-by-Side Investment with Qualified Fund Managers: Treasury will approve up to five asset managers with a demonstrated track record of purchasing legacy assets though we may consider adding more depending on the quality of applications received. Managers whose proposals have been approved will have a period of time to raise private capital to target the designated asset classes and will receive matching Treasury funds under the Public-Private Investment Program. Treasury funds will be invested one-for-one on a fully side-by-side basis with these investors.
Offer of Senior Debt to Leverage More Financing: Asset managers will have the ability, if their investment fund structures meet certain guidelines, to subscribe for senior debt for the Public-Private Investment Fund from the Treasury Department in the amount of 50% of total equity capital of the fund. The Treasury Department will consider requests for senior debt for the fund in the amount of 100% of its total equity capital subject to further restrictions.
With Wall street up an enthusiastic 4.3% , European markets have continued to rally and are up +3.3% with London +3% and Ireland +1.7% .
Well the question is now …. Is it over ? a surprising number of people I have spoken to are beginning to get very bullish here , if this plan works and it unlocks credit markets then anything can happen. Interesting to see stocks test resistance levels here. Lets hope they break through and move ahead.
Grand Slam ends the Recession ? (Or the Treasury helps reflate the bubble ? Maybe …. Who cares if it works….Gotta believe in something , and today is maybe a good a day to start ?
Have a good evening
Liam
___________________________________________
Liam Boggan
Merrion Stockbrokers
www.merrion-capital.com
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