Moody's Makes Largest Sub-Prime Downgrade

Moody's Makes Largest Sub-Prime Downgrade [¹]

By Renée Schultes | 13 October 2007

Moody's Investors Service has made its largest rating action in the US sub-prime sector by downgrading $33.4bn (€23.6bn) in mortgage bonds, but the agency also indicated there would be less rating volatility in the future provided market conditions remain stable. [['provided market conditions remain stable...' yes, and if my Grandmother had had wheels, she could have been a trolley car.: normxxx]]

The downgraded securities were issued in 2006 and are backed by sub-prime first lien mortgages, which are loans where the creditor has the right to sell the property if the borrower defaults on its payments.

The affected securities represent 7.8% of the dollar volume of the sub-prime residential mortgage-backed securities that were originated in 2006 and are rated by Moody's. The most heavily impacted securities were rated Ba, Baa, and A prior to the cuts.

Another $23.8bn of first-lien residential mortgage backed securities have also been placed ON REVIEW for downgrade. [[I guess that means my Grandmother must be shopping for wheels.: normxxx]]

However, Moody's said it expects to see less future rating volatility for residential mortgage backed securities originated last year, provided home price depreciation remains less than 10% from peak to trough and the current economic environment remains stable.

Moody's said that in making the downgrades it assumes the severity of losses associated with loans that are now delinquent will be between 40% and 50% on average.

The agency also took into account the assumption that loan modifications that may help reduce future losses were unlikely to be implemented in the near-term.

The Moody's downgrades come after rival agency Standard & Poor's said on Tuesday that the extent of losses from sub-prime mortgage exposures are not likely to emerge until 2009.

David Wyss, chief economist at S&P, said: "These problems are not over. We think in the United States, the housing market is not going to bottom until winter. We think the losses in these sectors won’t really hit their peak until 2009."


Half Of Buyouts Hang In The Balance [¹]

By Heidi Moore | 12 October 2007

Nearly half of the $660bn (€465bn) in leveraged buyouts announced this year are still pending as challenging credit conditions raise questions about whether many deals will survive. New data from Dealogic shows that $298.8bn worth of this year’s buyouts still have not closed. There has been $660bn in private equity deals announced this year.

Not surprisingly, given the credit crunch of this summer, leveraged buyouts are shrinking and there are fewer of them. For instance, in the 100 days before Blackstone announced its $24.5bn takeover of Hilton Hotels, there were private equity deals announced worth $423bn; in the 100 days since that deal, there has been less than a quarter of that activity, or $78bn, Dealogic said.

Only 24 buyouts worth more than $1bn have been announced since July 3. [[Guess the 'jumbo' buyout has gone the way of the 'jumbo' mortgage!: normxxx]]

Many big buyouts have faced problems presented by either material changes in their business or the inability of banks to provide financing. There have also been several notable problems and cancellations lately with big deals, starting with the shrinkage of the Home Depot buyout to $8.5bn and the scrapped acquisitions of Harman International and Axciom. In addition, friction and lawsuits are endangering the outcome of the proposed $25bn buyout of Sallie Mae by J. Christopher Flowers.

Still, private equity firms have not been dissuaded from raising more money. According to the Dow Jones Private Equity Analyst, buyout firms raised $199.4bn in the first nine months of this year, a 29% jump from the $154.1bn raised in same period of 2006, a booming year for fundraising [[well, no one ever said that the retail investor was shy; just look at the stock market: normxxx]].

Last year, private equity firms raised a record $254.3bn.

Normxxx    
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