July 8 (Bloomberg) -- Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.
Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.
Two years after the credit markets began to seize up, costing the world’s biggest financial institutions $1.47 trillion in writedowns and losses, banks are again taking so- called structured finance securities and turning them into new debt investments with top credit ratings. While the Morgan Stanley deal is the first to involve CDOs of loans, banks have been doing the same with commercial mortgage-backed securities in recent weeks.
A lot of banks and insurers “cannot buy anything but AAA,” said Sylvain Raynes, a principal at R&R Consulting in New York and co-author of “Elements of Structured Finance,” which is due to be published in November by Oxford University Press. “You’re manufacturing AAA out of not AAA, therefore allowing those people who have AAA written on their forehead to buy.”
This is exactly why the TARP, alphabet soup federal facilities, stimulus spending package, etc will not end the recession. These folks don't understand math.
I've never met a retarded person who wasn't smiling.
It's like selling sand to an arab. That's what the free markets are all about right? You have sellers of SOMETHING...ANYTHING...but can you find buyers? And quantify buyers will ya? If someone wants to pay you 1 cent on the dollar, is that a "buyer"?
And btw - 87MM is hardly market moving or market worthy. The thought that someone (or group of investors) would buy that is more inquisitive.
You should read up on the 1BLN dollar offering of hybrid insurance company bonds we successfully placed this week. Not only did we upsize that transaction, we had to turn some away and in most cases, we had to cut back on investors indication of interest.
So there's money out there that is dying to be put to work. Investors are demanding it and dealers are working feverishly to supply them
The guy in charge of winding down Lehman Bros was on teevee the other day, apparently, and made the comment that the investment houses are currently in "pretend and extend" mode. After all that's happened, they still don't want to face up to reality, so they keep trying to kick this garbage down the road and hope someone else is stupid enough to buy it.
There's a reason why that article specifically mentions that it's commercial backed paper they're trying to spin off their books--last year's blow up was residential paper, now the commercial paper is starting to go in the toilet.
