BUSINESS
cit
على وشك أن تصبح أكبر انهيار مالي من هذا العام.
Discussions continued Friday on the fate of small-business lender
CIT Group Inc. (CIT), which is on the brink of becoming the biggest financial collapse of the year.
Bondholders held calls Thursday to discuss options for the company, including whether to swap some of their claims for an equity stake to cut CIT's debt pile.
Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), and Barclays PLC (BCS) are also in early talks to provide $2 billion to $3 billion in financial help for CIT, according to people familiar with the matter. This would include new money, rather than simply rolling over existing debt.
This money could either be used to keep CIT out of court or become debtor-in-possession financing in a worst-case scenario.
But any deal to save the company will depend on the government allowing CIT to transfer its unencumbered assets to its deposit-taking bank.
"All of these things have to come together for CIT to skirt this problem in the near term," said Chris Munck, high-yield trader at B. Riley & Co.
Meanwhile, Bank of America (BAC) and Citigroup (C) posted better-then-expected earnings. Still, their reports, as did JPMorgan's earlier, "showed that the plight of the US consumer is getting worse," wrote Gavan Nolan, vice president, credit research.
Junk Bonds
Discussions on any financing for CIT are still fluid, according to one bondholder, who declined to be named. The floating-rate notes due August 2009, the most actively traded bond, were recently up 10.25 points at 68 cents. That's a touch lower than levels seen earlier in the session when these bonds gained 13.5 points at 70.5 cents. Longer-dated bonds were also lower.
Insuring $10 million of CIT's senior bonds against default for five years was around 44.5 points upfront, according to Phoenix Partners Group. That's against 49 points upfront Thursday. It now costs investors $4.45 million upfront plus a $500,000 annual fee to insure this debt.
CIT aside, high yield performed well this week, according to Barclays Capital analysts.
Investment-Grade Corporates
With new issue concessions disappearing, portfolio managers have to be more selective with high-grade corporate bonds, said Mirko Mikelic at Fifth Third Asset Management. "Individual analysis becomes more important with spreads coming in," he said. "In the beginning you could ride the wave, but now you can't do that anymore."
The rally in high-grade is being maintained as corporate earnings come in a little better than expected, he said.
Indeed, JPMorgan analysts, in a note, said high-grade spreads would tighten further than they initially projected, to 225 basis points by the end of the year, compared to the 275 basis points in their previous forecast. That's due to improving economic conditions and reduced supply. They expect $300 billion of new bonds in the second half this year, less than half the issuance seen in the first six months.
The benchmark high-grade derivatives index, the Markit CDX North America Investment Grade IG12, was recently quoted at 130.5 basis points Friday, basically flat from the close at 130 basis points, according to CMA DataVision.
Agencies
Agency debt was little changed after the Federal Reserve bought longer-term paper.
There was some tightening in the long end, with Freddie Mac (FRE) 5.125% 10-year notes coming in 3.1 basis points, according to Tradeweb. But the short-end was wider, with 3-year space most affected.
The Fed has bought a total of $101.93 billion, according to Barclays Capital. According to Barclays, 34% of buying has come in the 1-year to 2-year space, compared with 9% in the maturities more than 9 years out.
Mortgages
Mortgage spreads have tightened significantly, coming in six basis points from their widest levels, according to Walt Schmidt of FTN Financial. The current coupon spread over a blend of 5-year and 10-year ended the day at 155 basis points, compared to 161 basis points at Wednesday's close.
Schmidt said most of the tightening is being driven by movement in Treasurys amid light volume on mortgages, but other contributing factors include buying from cash accounts attracted to higher yields. Buying is also driven by Fed participation in market and trouble will ensue on the exit. "It's going to be pretty ugly," Schmidt said. "The consumer is dead. These banks are arbing the government. Even Goldman can't repeat Goldman."
Asset-Backed Securities
With the Federal Reserve doling out loans for existing commercial mortgage backed bonds, spreads are tightening. "Investors are getting comfortable with the TALF program," said Rob Dobilas, president and chief executive of ratings agency Realpoint, referring to the Term Asset-Backed Securities Loan Facility. "Volume will pick up in the fourth quarter as people work with the Fed to figure out what is eligible and what is not," he said.
Investors applied for $668.94M in loans to buy these bonds on Thursday. No new CMBS bonds have been issued in over a year so there were no loan applications for that portion.
Avis Budget Group (CAR) was in the market with a $450 million deal that is not eligible for financing under the Fed's TALF program. The deal, dubbed AESOP 2009-1, has a duration of 3.03 years and is rated A2 by Moody's. Joint leads on the deal are JPMorgan and RBS (RBS).