Glen Bradford

Are the 'Sharks' Waking Up?

l am waiting on the news today. But I'm in if things look up.


On Mar 14 10:18 AM Mr Wall Street wrote:

> Anthracite has been an active buyer of lower CMBS tranches for many
> years, and yes, there is no doubt their portfolio has exposure to
> post-2005 below investment grade CMBS. However, deteriorating underwriting
> standards and overly generous loan terms, such as 10-year IO, were
> not rampant until 2007, so the amount of "risky" CMBS out there is
> not as large as some may think. Also, the ultimate loss realization
> from recent vintage CMBS is a big debate, and the figures you have
> quoted are very "doomsday" in nature.
>
> Without opening the corporation's books, we cannot see an itemized
> list of AHR's holdings. But CAN see specific classifications through
> publicly-available reports, which show that the largest component
> of their portfolio is investment grade CMBS, and I can tell you from
> personal knowledge of their below investment grade acquisition history,
> that the majority of those holdings are older vintage. Nevertheless,
> there will unquestionably be losses to AHR's portfolio, and no one
> has a crystal ball to determine how much, so we must assume the worst
> case scenario, and I can't imagine anything worse than 10 to 15%.
> This would still support a stock value far north of $5.00 per share,
> as I suggested in a previous blog. In other words, there is no scenario,
> no matter how pessimistic, that suggests AHR's portfolio would ever
> be "worthless".
>
> There is unquestionably some lingering downside for commercial real
> estate values, especially with the momentum of retailer bankruptcies
> and shrinking corporations. So I think it will get worse before
> it gets better, and CMBS will no doubt feel some pain from this,
> primarily from maturing loans. But we have some insulation from
> this since the CMBS loans maturing over the next couple of years
> were underwritten at a time when cap rates were higher, which for
> the most part should compensate for recent market value deterioration,
> and amortization was common, thereby making the refinancing scenario
> similar if not better than the original loan scenario +/-10 years
> ago. The real problem is the current credit crunch, which is preventing
> borrowers from obtaining take-out financing, but fortunately special
> servicers are extending maturing loans for now as we all wait for
> the credit markets to re-emerge. Great news, indeed.
>
> I could go on for pages about all this, but I did want to ask what
> you meant by "dupers with 30% enhancement"? CMBS transactions do
> not contain any sort of "enhancement" such as credit default swaps
> and such. Super-senior AAA tranches typically have 30% subordination,
> which simply means that 30% of the transaction is tranched below
> that class, and there is nothing tricky or suspect about it. Securitization
> is a solid, 100% supportable structure with risk distributed among
> specific classes to accommodate multiple investor appetites. The
> only weakness would be from irresponsible lending attributed to the
> underlying loans, and that is a problem no matter how the loans are
> sourced, as we discovered during the S&L crisis in the 1980's.

Anthracite Capital Deserves More Than Cramer's Cliffs Notes

Wow, I'm looking at it now... at $0.75. Tomorrow might be the turnaround point.