bizzXceleration: Performance, Value and Profit

Which tells us what we've known - no one really knew how these synthetics would work out. And people were worried about Frankenfood instead of Frankenfinance ;). As a result of which the bond insurers are likely to be cut and expose everybody to further writedowns, LBO related debt is starting its' own cliff-diving voyages, corporate loans are following down the razor blade of re-pricing for real risks and corporate debt defaults are looking to increase significantly. Can we please have the monsters back !Credit Tightens, Demand Falls Banks are tightening lending standards amid weakening demand for credit, a Fed survey shows, the hardest evidence yet that the credit crunch is spreading beyond real estate Banks are tightening lending standards for businesses and consumers -- even beyond real-estate loans -- and companies' demand for credit has weakened, a new Federal Reserve survey of senior bank-loan officers shows. The January survey offers the hardest evidence yet that the credit crunch is spreading. Although banks also reported some tightening of lending requirements on credit cards and other consumer loans, commercial and industrial loans have been the most severely affected.One-third of the U.S. banks and about two-thirds of the foreign banks responding told the Fed they had tightened lending standards on commercial and industrial loans during the three months ended Jan. 31. About half the banks said they have widened the spread between their cost of funds and what they are charging borrowers.

 Credit Markets

Moody's Weighs Warning Labels For Its Rating In an acknowledgment that the system it used to rate billions of dollars of mortgage-related securities was potentially flawed, Moody's Corp. said it is considering a new way of rating those and other sometimes-volatile structured finance vehicles. The credit-rating firm is considering an overhaul of its rating procedures that could include new labels to help investors distinguish collateralized debt obligations and other structured-finance investments from corporate bonds and Treasury securities. One of the most significant changes being considered by the parent of Moody's Investors Service: a new, 21-point numerical scale to rate structured securities. Moody's familiar letter grades -- from triple-A to single-C -- would continue to be used for corporate and government bonds, including tax-exempt municipal debt.More broadly, the ratings firm is trying to decide whether to add warning labels that essentially acknowledge the limitations of its ratings.

·         Moodys Warning Labels (sub-prime version) Let me make sure I understand this:1. Moodys (and S&P and Fitch's) labelled a bunch of horrific junk -- RMBS, CDOs, CDS, and other stuff -- high quality AAA. 2. The banks and brokers all shoveled this crap to their clients around the world, many of whom then promptly blew up. 3. Once the music stopped, these banks and brokers got caught holding loads of this AAA rated  paper, leading to $130 billion -- and counting -- in write downs. 4. The banks then saw their credit ratings get downgraded by the same companies that rated the original crappy paper AAA. AND NOW THE SOLUTION PROPOSED BY THOSE SELF SAME RATING AGENCIES IS TO PUT A WARNING LABEL ON THEIR RATINGS? Are you shitting me? Words fail me . . .I'm thinking waterboarding the entire staff is the way to go with these criminal idiots, and instead, they think a mattress tag is a solution?  Well that's just fine. I'll write the warning for them:

o        WARNING: THESE BONDS HAVE BEEN RATED AAA BY A MAJOR RATING FIRM. THESE RATING FIRMS HAVE PROVEN THEMSELVES TO BE CLUELESS, MONEY-LOSING INCOMPETENTS IN EXCESS  OF A TRILLION DOLLARS IN LOSSES. THEY WERE PAID HANDSOMELY BY THE BOND UNDERWRITER, AND ARE HOPELESSLY COMPROMISED. PURCHASERS OF THESE BONDS ARE ADVISED TO  IMMEDIATELY  KILL THEMSELVES, THUS SPARING THEIR LOVED ONES EMBARRASSMENT IN THE FUTURE. ALSO, THESE BONDS MAY LOSE VALUE. I JUST WET MYSELF MERELY THINKING ABOUT THIS PAPER. WHILE PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS, YOU SHOULD BE AWARE THAT PAST PERFORMANCE ALSO SUCKED. DONT BLAME US IF YOU LOSE ANY MONEY, AS WE HAVE NO IDEA WHAT THE FUCK WE ARE DOING ANYWAY. REALLY, YOU ARE ON YOUR OWN.

Fitch: May Cut Monoline Insurer Ratings, "regardless of capital levels" This bears repeating: The new modeled losses could "call into question the appropriateness of 'AAA' ratings for those affected companies, regardless of their ultimate capital levels." Regardless of capital levels. That really says it all.

• CDO Market Is Almost Frozen, Merrill, JPMorgan Say

Loans for buy-outs plunge in value Loans backing leveraged buy-outs are trading at levels not seen since the buyers’ strike of last summer, because a number of hedge funds and leveraged credit funds have been forced into firesales. Traders said loans used by private equity groups to support buy-outs had plunged in value as bank proprietary trading desks refused to buy them from these funds. A series of hedge funds that were big owners of leveraged loans have been frozen in the past six months, because severe losses and investor withdrawals threatened their survival. The past two months had seen the sale of loans by these and other funds that were hurt by banks making higher margin calls, traders said. They added that lists of assets being sold would be circulated after funds missed margin calls. Markit’s LCDX index of credit default swap protection on US leveraged loans came within a whisker of its July all-time low on Friday, with series eight of the index trading at 92.16, indicating loans were worth 92.16 cents on the dollar. It had recovered to as high as 98 in October, before resuming its decline. Loan market in ‘disarray’ after Harrah’s upset

• Corporate-Loan Market Is Reeling The value of many buyout loans issued last year are falling sharply, making it virtually impossible for banks to unload other commitments they have made. 

Apollo, Bain LBOs Lose Investors' Money, Bonds Show Less than a year after Apollo Management LP paid $6.6 billion for real estate broker Realogy Corp., bond prices show the deal may be worthless. Debt used to finance the April purchase trades at 61 cents on the dollar, and derivatives tied to the securities indicate an 83 percent chance that Parsippany, New Jersey-based Realogy will default. Apollo, the private-equity firm run by Leon Black, put up about $2 billion of cash to buy the owner of Coldwell Banker and Century 21, borrowing the rest. Falling bond prices are jeopardizing private-equity returns after easy access to cheap debt fueled a record $1.4 trillion of leveraged buyouts in 2006 and 2007. New York-based Morgan Stanley estimates buyout funds raised in 2003 have returned an average of 42 percent, and now Apollo, Bain Capital LLC, Cerberus Capital Management LP and their competitors may face losses.

Spectre of defaults rises amid tight lending  Heavily indebted European and US companies are facing growing financial difficulties because they cannot refinance their borrowings due to the continuing closure of the credit markets. Companies’ inability to borrow is raising the spectre of defaults, particularly among the most highly leveraged companies in sectors such as property that have been hardest hit by economic uncertainty. A big source for refinancing in Europe was the high-yield bond market, which has been closed since July, the longest closure since 2003. The European leveraged loan market is also at a standstill, with only a handful of deals priced in the past month and $64bn in loans still awaiting syndication, according to Dealogic, the data provider. The US high-yield and leveraged loan markets have also slowed to a trickle as fears of recession threaten to exacerbate problems for companies in need of capital. Loans awaiting syndication in the US stand at $74bn….

Junk-Bond Defaults Seen to Multiply The credit markets have for years proved a financial sanctuary to struggling companies in distressed industries like retailing, trucking and home building. But the easy money has gotten much harder to find. The likely result, says the New York University professor who wrote the book on corporate bankruptcies, is a big jump in companies unable to pay their borrowing costs, which often can lead to job cuts and shuttered plants and offices. In a closely watched report to be released today, finance professor Edward Altman projects that high-yield, or "junk," bonds will default by a rate of 4.64% this year. That would be the highest rate since 2003 and a nine-fold increase from the 0.51% rate in 2007, which was the lowest rate since 1981. High-yield debt is typically used by lower credit-quality companies to fund operations and acquisitions. Mr. Altman, whose so-called Altman-Z score is the market standard for predicting bankruptcy, sees as much as $53 billion in high-yield debt defaulting in 2008, up from $5.5 billion in 2007. Mr. Altman's study takes into account a company's original credit rating when it received its financing, historic default rates, the size of debts outstanding, and other factors. Already in January, Mr. Altman estimated defaults hit $3.2 billion, about 60% of the total for all of 2007. Mr. Altman and others in the turnaround and bankruptcy fields have incorrectly predicted an upswing in defaults and corporate bankruptcies for the past two years, as an aggressive lending market allowed companies to sidestep their financial and operational problems. A year ago Mr. Altman predicted a default rate of 2.5% for 2007."Mea culpa. I was wrong. A lot of us were. The liquidity out there did that. There was a fair amount of rescue financing that went to companies that normally would have defaulted." he said. Restructuring experts say the credit crunch could mean distressed industries like retail, restaurant chains and consumer products could this year start to mirror long-struggling areas like the U.S. auto-supply business. That industry has been besieged since 2005 by plant closures, massive layoffs and bankruptcies from smaller firms like Plastech to the country's largest supplier, Delphi Corp.