Ashish S

Merrill CDO Deal: How Can It Book a 'Sale'?

The option analysis is an interesting angle.

For Lone Star, this deal is oddly similar to the deal the Fed gave to JPM for Bear Sterns .. The Fed took all the downside risk after a small sliver of risk taken by JPM and JPM retained all the upside equity.

Additionally, a little noted consideration is that Lone Star is identified in ML's press release as an "affiliate", which usually means that ML has more than a 20% but less than a 50% stake in Lone Star. So a) this means it certainly wasn't an "arms length" price and b) ML may retain a small portion of the equity.