Wednesday, March 19, 2008

Insights on E&Y Monitor's Report

By: John Sokic, Daryl Ching

As most of you know, we will be providing our corporate and retail clients a summary and analysis of the Restructure Plan. While we have not received the finalized documents, we did review the Monitor's Report from Ernst & Young available on their website at http://documentcentre.eycan.com/pages/main.aspx?SID=35. We would like to provide our readers with the following insights, that we found interesting:

Section 17

  • $32B total among 189 deals
  • 97 Traditional deals, totaling $7.5B
  • 21 deals that are either cash or unlevered CDOs, at $4.5B
  • 71 Levered Super Senior (“LSS”) deals, at $17.6B
  • Cash in all affected conduits from return of principal includes $2.4B

Section 46
Virtual Data room containing information on the underlying assets will not be available until all agreements are finalized. The question remains as to when this will be.

Section 48
Aggregate Cash Position for all affected conduits as at January 31, 2008: $3.2B. Some of this cash may be used to cover the shortfall in the margin facility, if it is not fully funded. We understand there is a commitment for 98.5% of the $14 billion required amount at this time.

Sections 51-53
There is a planned sale of approximately $1.5 B of Traditional Assets for potentially as much as their par value. This would benefit series specific noteholders of Traditional Assets.

Section 56
Conduit Sponsors will receive 30 bps for administration services accrued from August 2007 through to the end of the restructuring phase.

Section 62 d)
Fee Cap on Conduit Sponsors seen as positive by E&Y. It allows surplus funds to be available to be used for margin funding requirements or interest payments to noteholders. These comments imply that margin funding top-up is the highest priority in terms of cash direction for the new, restructured notes. Cash on hand, interest and principal received going forward could be diverted for this purpose, potentially delaying repayments to noteholders.

Section 79 e)
There is a statement here that implies a 9 year expected maturity for the restructured notes.

Section 83
DBRS Rating on Class A notes may end up at single "A".

Section 87
E&Y says swap triggers are not finalized (among other arrangements). This introduces speculation on where the triggers will end up and whether there are any issues with counterparties in the current volatile market environment.

Section 90
74% of LSS deals have hit triggers, with another 20% within 10% of doing so as well. This confirms our suspicions that a fire sale today would lead to extremely low recoveries.

Section 91
E&Y believes that investors would experience a very low recovery, should investors choose not to approve the restructure. They also say that a legal battle, as an alternative avenue for investors, would be very costly and time consuming.

Section 97
E&Y says the A-1 notes in each MAV are the focus of the restructuring in the sense that they are designed with subordinate tranches to achieve a high rating and ultimate liquidity in the secondary market, post restructuring.

Section 98
MAV1 investors need to be AA (low) and/or need to have their amount of MFF commitment in cash or cash equivalents.

1 comment:

Feeg said...

What type of deal room are you using?