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iStar Financial Inc. Message Board

  • pimmoban pimmoban Jan 28, 2009 1:06 AM Flag

    Some useful points...

    I'm new to the board, but I thought I would point out some useful information...

    1) CSE discussed their Fremont participation in their presentation at the Citi conference today. You can access it from Capital Source's website ( The highlights of their comments were they said the Fremont particpation had paid down well in Q4 with it standing at $1.2 to $1.3 billion at the end of the year. He characterized December repayments as "strong" and iStar as funding appropriately the projects that should be funded and not funding those that shouldn't. Using the midpoint of this $1.2 to $1.3 billion range implies $350 million of payments to CapitalSource (From the $1.6 billion size of the A piece at the end of Q3). $350 million to CSE's A piece implies $150 million to iStar's B piece, which gets them significantly towards the $400 million of repayments they hoped to get in November and December. The fact that the Fremont loans repaid well in Q4's environment makes me a little more sanguine about the rest of the expected repayments from iStar's own originated portfolio which I would generally characterize as higher quality than Fremont product.

    2) The 4 7/8 Notes of January 2009 were repaid on the 15th. i.e. they passed a major hurdle. They were not likely to be able to buy much of these bonds in Q4 as less than $30 million traded with prices ranging from the low 80s to high 90s. According to the Q3 10q there was $303.5 million still outstanding as of 9/30. They paid this...

    3) The next significant debt repayment is the Floating rate Note issue due March 16th. According to the Q3 10q, there was $206.4 million oustanding as of 9/30. This bond they could ahve bought alot of in Q4...According to Bloomberg it traded $169 million of face from 10/1 to 12/31 at an average price of $0.69. In Q3 they bought a third of the $14.5 million that traded almost all in the low 90c range. This last traded at $0.91 on 1/26/2009.

    4) The could have bought a significant portion of the September indenture (this is the big one) in Q4. $287 million face traded between 10/1/2008 and 1/23/2009. $96.7 million before the 10q was released and $191.1 million after. The average price for this bond over the period was $0.594. It last traded at $0.72 on 1/23/2009.
    They barely bought any of this bond in Q3. It also barely traded.

    My main concern is actually not the bonds which they seem to be able to manage (they paid Jan, March is $200 million face which they could have bought a slug of cheaper, and September is a long time away and they definately bought some of these cheaply). But rather there ability to get repayments in and their requirement to continue to fund deals. If anyone can comment on how lenders are performing on actually funding deals and how they can get away with not funding "non-discretionary" commitments, I would find that helpful.
    I found CapitalSource's comments that the Fremont portfolio's repayments in December weren't bad encouraging on this front....especially because Commercial real estate is getting worse but the credit markets are getting better from December.

    4) Mack Cali announced today that they mortgaged two of their properties with Guardian Life Insurance for $64.5 million in proceeds. They are paying 7% which is quite high, but cheap compared with buying back debt at 30-50c on the dollar (which is where the outer dated notes trade). iStar must be pursuing mortgages on some of their almost $1 billion in unencumbered assets in the CTL business and participations or outright sales of some of their better quality loans. If we are lucky they were able to get something done in Q4 and/or early Q1 to fund additional debt repurchases.

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    • You could default on the mortgage, then buy back the house from the bank after foreclosure

    • ag55gen, thank you, I've meant home mortgage.

    • >>Discounted debt purchase is possible with Danish mortage bonds, but not possible with American CDOs.<<

      Please read the NRF conference call transcripts or 10-Q. NRF for one is very busy buying back the debts of its own CDOs at deep discounts. Therefore, your statement above is at least somewhat inaccurate.

      But if you mean that someone with a home mortgage that has been securitized in the U.S. can't take advantage of market dislocation by buying back some CDO debt at a discount and cancelling out their home mortgage, then I would have to agree with you.

    • Discounted debt purchase is possible with Danish mortage bonds, but not possible with American CDOs.

      Here is a quote from about the Danish mortrage bonds: "Loans can also be prepaid using bonds. These bonds can be purchased at a discount if that’s where they are trading, and receive prepayment credit at par."

      That's why American CDO market is illiquid: no individual can buy CDOs to repay the debt, while Danish bonds are protected from sharp decline in price: there is always willingness of the individuals to repay debt with discount.

      There were also in arcitle about Danish mortrage bonds in The Economist newspaper two weeks ago.

    • If you are willing to file personal bankruptcy and have your credit rating destroyed, then you have a credible threat and a shot at getting a modification from the lender.

      But if that is the case, why are you spending time in an investment forum?

      If your mortgage was owned by a hedge fund that is winding down, the answer might be different.

    • All this talk of the benefits of buying back discounted debt makes me wonder if I can do it personally. I'm thinking about approaching tne owner of my unsliced and diced 2 year old, 15 year jumbo mortgage and offering to buy it back at a percentage of present par, financed by a new conforming mortgage plus the cash necessary to get it to conforming size....Hmmmm, I wonder if I can get them to listen and what percentage discount to offer... Hey if SFI can take advantage with available cash, why not me too?

    • With regards to borrowing against secure assets, I only know of the 960m loan from GE which was announced May 6th with an expected 45 day close. I would be interested to know if anyone knows more about this.

      • 1 Reply to dj40181
      • That loan closed in the second quarter and was disclosed in the 10-q. As of the third quarter, there was only $1.3B in debt secured by their CTL assets which are probably worth north of $5B so one could presume that there is some borrowing capacity left on the secured side. Increasing their secured debt will hurt their chances of regaining their investment rating, but I don't think they care as much about that these days, since they're not looking to place anymore unsecured debt until the capital markets return to some normalcy. Right now their best use of capital is to retire debt at a discount that will otherwise come due in full soon enough. Not much point in paying 100 cents on the dollar in a few months/years if you can pay 90 or 80 or 30 cents on the dollar now. It's all about balancing cash flows and these guys are pretty good at it. My guess is the 10-K will have some pretty juicy nuggets in it, in spite of the headline losses that will capture all the attention. Look to the debt maturity schedule each quarter to see if things are getting better or worse. The data's all their if you don't mind digging a little.

    • Agreed. Buying debt back at 30 cents on the dollar is great no matter where the funds come from, be it new SD or discounted sales of NPLs. Then again, buying back Preferreds at 10 cents or Common at 3 cents isn't too shabby either.

    • Thanks Rocket -

      I guess however it's sliced buying back debt helps everything.

      When the gains earned thereby no longer need to fund loss reserves they become profits that have to be distributed, which is a potential issue.

      iStar is selling at such a discount to book that using stock for dividends doesn't make any sense.

      What does make sense to me is to effectuate a NPL/deleveraging coup by getting rid of all junk assets that can be offset by debt gains. Neutral on current income, really good for the balance sheet and really accretive for future income since the NPLs earn nothing and the interest savings on the debt is equivalent to the inverse of the discount.

      8% debt bought back at .33 cents on the buck equals a yield on invested capital of 24%.

      Worst case debt gains could always be paid in cash to the common shareholders. Wow.

      Fun stuff, lots of issues.


    • Yeah, I figured somebody might pick up on that one. Here's the deal: We went from a 1.2 ratio on unsecured debt to a 1.176 by virtue of going to a 1.333 on secured debt. When you figure the weighted average of the 1.176 with the 1.333 you get back to the 1.2 that we started with. So, by borrowing at a loan to value of 75% the resulting SA/SD of 1.333 requires that the UA/UD go down to allow the 1.333 to "average up" to the original 1.2 (which is just a dumb way of saying that the equation balances).

      Clear as mud?

      Bottom line: Take the anticpated cents on the dollar that we can repurchase debt and multiply it by the inverse of the 1.2 covenant (i.e., 83.333%) and you get the LTV that must be achieved to not affect our compliance. Alternatively, take the anticipated LTV on the new secured debt and divide it by the 83.333% and you get the price that the unsecured debt must be repurchased to not affect the covenant compliance. So, for example, if we buy debt at 60 cents on the dollar we only need to achieve secured debt LTV of 50% to do the deal and stay in compliance (.8333 times 60%). Or if we expect to achieve a LTV of 75% then we need only get to repurchase debt at 90 cents on the dollar to achieve the same result (75% divided by 83.333%). Either a higher LTV or a lower price of the unsecured debt will push us further into compliance, and vice versa.

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