Investor Man

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    • Sun Sep 28th 14:08 PM | Rating: 0 0
      Commented on:
      Could the Uptick Rule Save the U.S. from Financial Terrorism?
      This is a Great Piece, I agree the Old up tick rule
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    • Sun Sep 28th 09:08 AM | Rating: 0 0
      Commented on:
      Bring Back the Uptick Rule
      It is impartive that you up tick rule come back into play. This rule stops shorts from taking out bids, and creats a false sense of owners of a company are cashing out.
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    • Mon Feb 25th 21:25 PM | Rating: 0 0
      Commented on:
      5 Leveraged Loan CEFs To Watch

      This is commentary on Bank Loan Funds and Senior Bank Loan Funds - Loans issued to companies…
      Senior Loans are the second most common form of financing for mid-sized public companies and for leveraged buyouts. Senior Term Debt is typically lent against the collateral value of property, plant and equipment. Senior Term Debt comes in many varieties and there are many sources of this type of financing.
      Typically 50% to 70% of a firm's capital structure is comprised of senior debt. A senior loan is collateralized by a first lien on the current and long term assets of the company. Senior financing is generally made available from banks and finance companies, although privately-placed notes to institutional investors are also possible, or a public issue of bonds is occasionally the source.
      Senior Term Debt typically amortizes over 4 to 7 years. These payments are generally monthly or quarterly. However, the amortization schedule can be more erratic and may be structured to conform to the company's projected cash flows. For example, amortization payments may gradually increase over time in consideration of a company's expected growth. Some lenders are willing to forego amortization payments for a number of years and allow the loan to be repaid in one or a few large payments. Typically, the longer the time to repayment, the higher the interest rate will be.
      Interest rates on Senior Debt range from one-quarter percent under prime to five percent over prime, depending on the perceived risk of the company's cash flow and the quality and quantity of collateral. Interest rates may be fixed or floating. Sometimes a lender will tie the interest rate to a schedule, such that if the company becomes less leveraged, the interest rate decreases because the company's risk has also decreased.
      Financial Institutions started to create instruments called Collatorized Loan Obligations or CLO's in an effort to provide a cheap and attractive way of mitigating and dispersing risk. A CLO is a special purpose vehicle (SPV) with securitization payments in the form of different tranches. Financial institutions back this security with receivables from loans, very similar to how a CMO works, except for the assets securing the obligation. CLOs allowed banks to reduce regulatory capital requirements by selling large portions of their commercial loan portfolios to international markets, reducing risks associated with lending.

      Hedge funds, seeking to put on an interest rate arbitrage investment, used their investor’s assets AND borrowed funds from via their prime brokerage dealers or other lending instutions, to buy senior loans. This arbitrage portfolio may be leveraged as much as 300-400% of equity. As the credit tightened these lending institutions were no longer lending money to these hedge funds, and hedge funds are being forced to liquidate their loans.

      In the past couple of months some of these SPV are being Unwound and causing severe market disruptions due to the flood of assets and lack of buyers, this is resulting in senior secured loans trading at deep discounts.

      This Market for Bank Loans is typically a relatively liquid market normally, but with the unwinding of structured investments and the lack of investors/institutions... funds looking for these assets, meaning no NEW money coming into purchase these investments, these assets have been greatly depressed over the last two weeks.

      The fundamental credit quality or balance sheet of the underlying company is not affected by the price of the loan traded on the secondary market. However, as the company in required to reissue this debt upon maturity, they will have to pay higher interst rates. These higher rates with then affect earnings. An alternative to paying higher interest on their debt, the company can raise addition equity, diluting shareholder ownership.

      I believe that smart money (hedge funds etc) will be putting money into these assets with the potential for equity like returns

      Take a look at the fidelity fund with the symbol FFRAX, finance.yahoo.com/char...;range=5y
      This fidelity fund is a NON Leveraged Fund - I only show for an example -

      There are many Closed End Funds that trade with these assets in them, these are funds that trade as stocks, that don't issue new shares. They can trade at a discount or premium to there value. These funds in most cases use Leverage to enhance the yield, so if they raise 500 million, they will also borrow 150 million.


      These Closed end and Open End will be providing Equity like returns when stability comes back into the market, they have been painful to own, as a fixed income investment, but we will be overweighting them as an equity holding in the coming months.

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