in a 10/08 filing. That filing removed CFC as trustee and guarantor and replaced BAC as the trustee and guarantor. So if BAC lets CFC file for Chapter 11 (which is highly doubtful) they are still on the hook for this preferred stock.
Joel great reply and rehash of the history. I bought a boat load of this issue in the single digits in 2008 when things were really scary and am still holding. I bought some more the other day. I could not resist. Remember in 2008 corporate issues of top tier companies not in the financial sector were yielding over 9% and trading at 60 to 75 cents on the dollar.It was a once in a lifetime buying opportunity I will never forget. I made more money investing in corporate debt than I could have dreamed.However when I was buying the stuff my stomach was turning. I still have most of the stuff I purchased but the companies have been refinancing and redeeming. So I could not resist the dip the other day to scoop up 10% on the CFCp. Best wishes and keep up the great posts.
This is actually revisiting our discussion from 2008. BAC changed the guarantees because guys like us were speculating that BAC was handling the CFC acquisition in a way so they could theoretically BK the remaining shell. They had already transferred out a number of the assets and had not moved much of the debt - especially these Capital Trust obligations.
I don't know about everyone else, but I went to the trouble of asking Bank of America IR about it at the time. About 6 months later they apparently bowed to the pressure and changed the guarantees. Of course it was more than just our posts, emails and phone calls. BAC had also gotten into a dispute with the Bank of New York Mellon - the CFC preferred trustee - over some debt that CFC had issued before the acquisition.
New York Mellon was asserting that BAC was in default on all of their obligations because CFC had failed to honor terms of that one debt issue. As the agent for many of those investors, they sued. They also stopped all CFC trust dividend payments as they were allowed to do under the terms of the trust agreements. This did not inspire confidence in the BAC / CFC merger, so the CFCs tanked again.
Ultimately I think BAC took on most of the debt and most of the assets of CFC. From what I understand there is still a CFC shell corporation, but bankrupting it would be pretty pointless as most of the troubled assets are no longer part of that subsidiary.
BTW, I've heard that BAC's problems aren't all CFC's fault - that's partly BAC's own spin on things. On a percentage basis, BAC probably originated more questionable loans than CFC did - CFC was just a larger loan originator and servicer. CFC did a lot of first mortgages while BAC did a lot more seconds and IO loans. Once in default, the seconds and IOs have much lower recovery rates than more conventional FRM and ARM loans, so the legacy BAC loan portfolio as a whole is actually performing worse than the legacy CFC port. But since BAC has tried to pool the two portfolios - all serviced by what was CFC - the associated losses get reported together and make the CFC deal look even worse than it was. But the point there isn't to defend CFC - it's to point out that if they'd remained separated, BAC wouldn't have had an easy scapegoat in CFC. And even if they could separate it again, they probably couldn't get rid of as much of their obligations as people seem to think.
And to answer your question more directly, No. In my opinion there is no way BAC is going to BK CFC, no matter what people ask in the conference call or say in the Times. If they tried, they'd have to blow a huge amount on defense counsel trying to fend off the BK court's claw-back orders...
Of course that doesn't mean BAC won't eventually go bankrupt. I still hold a lot of CFC's myself (and a few other BAC issues); but I've been trying to avoid buying more because I think this risk is rising. Had they held onto the TARP funds and not been so quick to repay Treasury I'd feel more confident. But as things are today, you need to remember this issue is rated junk for a reason and try to limit your exposure to it somewhat no matter what a good deal it might seem to be.
(Who is not a lawyer or a professional financial analysis.)
The point that I was trying to make was that Countrywide, just as Merrill Lynch, is a part of BOA and that for Countrywide to go belly up BOA would have to go first. At least that is the way I understand it. This has been an interesting discussion and I appreciate all the comments.
Technically accurate, but unfortunately it has been the other way around. As Countrywide has gone south, so has BoA.
In the unlikely event that CFC ever does file for bankruptcy, I would expect the CFC Trust Preferreds to tank initially. I would buy heavily if that happened.
I have just read a document which confirms this. It is under the name 'MARKit'. Would appreciate other confirmations of this. If so, no reason to sell unless you are worried about BOA.
Fed rules require under certain capitalization circumstances, that banks can suspend trust preferred dividends for up to 20 quarters to repair financial health, but common share dividends will be suspended first and for the duration of the TRUPS suspension. Read the PROSPECTUS for CFC-PB to verify my post here.