Keeping score: NBC, asset-backed bonds
Highlights from this week’s Thomson Reuters Investment Banking Scorecard:
COMCAST-NBC UNIVERSAL LIFTS MEDIA M&A The proposed combination of Comcast and NBC Universal into a 51:49 joint venture brings the announced volume of mergers in the media and entertainment sector to $79.7 billion, a 31% decrease from last year at this time. The transaction is valued at $14.4 billion, which signifies GE’s net asset contribution and ranks as the second biggest transaction in the sector this year, after DirecTV Group’s $14.5 billion merger with Liberty Entertainment in May. Overall, worldwide M&A totals $1.9 trillion, down 33% compared to 2008 levels.
SECURITIZATIONS PULL AHEAD OF 2008 LEVELS The volume of new asset-backed and mortgage backed securities total $498.9 billion for year-to-date 2009, a 3% increase over 2008 levels. After a nearly 85% decline in 2008, the market for securitizations of residential mortgages, credit card receivables and auto receivables has slowly returned aided by US government guarantee programs. Issuers in the United States account for 38% of overall activity this year, followed by UK-based issuers with 15%.
ASIA PACIFIC M&A DOWN 11% Asia Pacific M&A activity totals $367.5 billion for year-to-date 2009, an 11% decrease from 2008 levels. Consolidation in the financial, high technology and energy and power sectors accounts for 45% of announced deal volume this year. High technology merger activity has more than doubled in the region, while activity in the telecommunications and materials sectors has seen declines of 77% and 45%, respectively.
Noted: 5-year funk means no office firesales
Despite a looming wave of defaults, sell-offs of European offices at knock-down prices are unlikely, because commercial property prices are likely to tread water for years, rating agency Moody’s says.
in a report on the region’s commercial mortgage-backed bond market, Moody’s said it expects more loan defaults, but doesn’t think commercial property values will “materially recover” for the next five years. (Reuters report here.)
This means that special servicers — the administrators responsible for deciding the future of bust securitisations — “will not pursue immediate sale of the properties … but rather continue to collect the rental cash flows where possible and dispose of the properties under more favourable conditions, which may reduce ultimate losses,” the agency said.
Some foreign buyers have not been put off, with South Korea’s National Pension Service spending 268 million pounds on a pair of prime London office buildings.
Curiouser and curiouser
Seen with a post-bubble eye, securitisation is a bit of a looking glass world. Lewis Carroll would probably have appreciated “synthetic” obligations not built on real assets, near-meaningless credit ratings, and legal documents that fail to do what they are designed for.
So spare a thought for holders of asset-backed bonds who have had to take a trip down the rabbit hole.
Some of the worst-affected bonds are commercial-mortgage backed securities (CMBS), which in Europe have suffered largely because of the plunging value of the property used as security for the debt.
The fate of these bonds is now increasingly in the hands of a small group of secretive administrators, known as “special servicers”, as I wrote earlier.
In the wonderland envisaged by the creators of these deals, the special servicer’s job would amount to little more than a few tweaks here and there. But in reality, the special servicer is confronted by situations with few rules, no precedents and contradictory documents, as well as ranks of competing creditors spread out across multiple tranches. The diagrams explaining the financial structures are works of mind-bending complexity.
So it should not come as a surprise that this has meant some restructuring situations involving CMBS transactions have dragged on as investors struggle to reach a deal.
Special servicers need to make sense of it all, and quickly, as more CMBS loans are likely to end up in the hands of the special servicers. That is, unless someone can find a potion to boost real estate prices. After all, the days of investors believing six impossible things before breakfast are probably over.
It is unfortunate that the buyers of these bonds did not remember the old saying:
“If you don’t know what it is then don’t mess with it!”
Keeping score: bankruptcy boom
The Thomson Reuters Investment Banking scorecard lands again. Here are the highlights:
BAAT Offers Largest Auto Loan Securitization of 2009
A US asset-backed offering fell among the top global debt deals of the week, as Bank of America Auto Trust (BAAT) offered a $3.9 billion TALF-eligible auto loan securitization, the largest such ABS offering this year. In total, auto loan backed issues have accounted for 35.7% of US ABS, the largest share of the approximately $80 billion so far in 2009.
