|Bid||193.81 x 1000|
|Ask||197.35 x 800|
|Day's Range||192.61 - 194.52|
|52 Week Range||129.26 - 201.38|
|Beta (3Y Monthly)||1.54|
|PE Ratio (TTM)||28.73|
|Earnings Date||Jul 25, 2019 - Jul 29, 2019|
|Forward Dividend & Yield||2.00 (1.03%)|
|1y Target Est||198.17|
Moody’s Analytics, a global provider of financial intelligence, has won Enterprise-Wide Stress Testing Product of the Year at the 2019 Risk Technology Awards. It’s one of six categories won across finance, accounting, regulatory, and credit functions.
(Bloomberg Opinion) -- So much for deleveraging. China’s biggest shadow lenders are back.On the surface, it may look like regulators have managed to shrink the role of trust companies, after a wide-ranging, months-long crackdown on China’s financial underbelly. Assets under management at these lightly regulated non-bank financial firms – a hybrid of private equity, asset management and lending – posted their first annual decline last year. Business revenue in the first quarter fell 5% from a year earlier. Broad shadow-banking assets fell 1.2 trillion yuan ($170 billion) in the first three months of this year.But in reality, trust companies are still in business: Monthly flows of their lending rose more than 90 billion yuan in the first five months of the year. While trust assets in the first quarter fell 0.7% from the previous period, they still stand at a staggering 22.54 trillion yuan. Trust companies’ fee income as a percentage of total assets under management rose for the first time in a decade in 2018, according to UBS Group AG’s Jason Bedford. Total profits in the first quarter rose 10.3% from a year earlier.Trust companies are lending directly to parts of the real economy that need it most, beyond bank balance sheets. Financing using trust assets climbed 4.4% in the first quarter, after dropping in the previous three quarters. As this figure rises, the quality of trust assets has deteriorated: The proportion prone to default and repayment risks climbed to a record high of 90% from a year earlier, according to Moody’s Investors Service. With more complex credit products under regulatory scrutiny, income from so-called actively managed trust assets with higher fees (i.e. loans and other investments) is ticking up. That means firms have even more incentive to push these businesses. In the past, shadow lenders leveraged such investments to juice returns; with the central bank artificially suppressing interbank rates, that could happen again. Analysts have already started discussing whether officials will shift toward even looser monetary conditions in the aftermath of money-market stresses.The resurgence of trust companies raises two questions: How dependent is China on shadow lenders, and can regulators even get their arms around the 60 trillion yuan ($8.7 trillion) of shadow-banking assets (on paper) – equivalent to 66% of gross domestic product – without kicking off another buildup? For now, Beijing doesn’t appear to have many options: The fact that activity is picking up even as officials attempt to calm nerves in the interbank funding market shows the economy’s deeply rooted, steadfast reliance on these institutions for credit, especially when banks are flinching.For years, trust companies worked alongside China’s banks to keep credit flowing in the system. The headline drop in their assets under management has largely come from a decline in trust beneficiary rights products. These are loans put in a trust special-purpose vehicle, which effectively allows banks to reclassify souring debts. Trust companies have also acted as agents between companies lending to each other. Together, so-called entrusted loans and trust loans stood at 20.1 trillion yuan at the end of the first quarter.Most of trust-backed products are concentrated at regional lenders – the likes of Baoshang Bank Co., which was recently taken over by regulators. In the early part of 2017, such products, in the form of investment receivables, increased between 10% and 40% at smaller banks. At Baoshang, they rose close to 15% and stood at 153 billion yuan, or a quarter of its assets, according to its latest financials. In theory, this tangle of financing can be unwound. But markets are signaling that there isn’t much tolerance for a bumpy ride. Meanwhile, a sudden hit to credit growth has wider implications that Beijing isn’t prepared to deal with, especially in the short term. Whether officials can maintain calm as they attempt to clean up a sprawling and opaque financial system is beside the point. What’s clear is that China needs its shadow banks now more than ever.To contact the author of this story: Anjani Trivedi at firstname.lastname@example.orgTo contact the editor responsible for this story: Rachel Rosenthal at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Moody’s Analytics, a leading provider of financial intelligence, announced today that the CreditLens credit-lifecycle-management solution has been adopted by over 100 firms since its launch. Built on the latest cloud-based technology, the CreditLens platform helps businesses digitally transform their commercial credit processes to make faster and better-informed decisions. The platform uses the latest AI and machine learning technology to facilitate process automation, and help clients improve efficiency, reduce errors, and streamline workflows.
Moody's reiterates BankUnited's (BKU) ratings, courtesy of the efforts to develop direct banking franchise organically, and improvement in its loan portfolio.
(Bloomberg) -- South Korea has become the world’s biggest source of so-called sustainability bonds this year as borrowers rush to sell notes that can fund projects to help the middle class and smaller firms in a sluggish economy.Sales of debt globally for sustainability projects have more than doubled this year to $16.4 billion, and Korea makes up about 16% of that total, Bloomberg-compiled data show. Korea’s Finance Ministry sold its first green and sustainability note last week, following issuance of such debt in 2019 by five Korean firms including KEB Hana Bank and Kookmin Bank.As a global slowdown and falling exports batter Korea’s trade-dependent economy, South Korean President Moon Jae-in is trying to support local demand with measures to create jobs and more income for the middle class and small- and mid-sized companies. For issuers of sustainability bonds, most of whom are banks, selling the debt to fund such projects will help burnish their reputation.“The purpose of sustainability bond issuance is in line with the government’s policies for low-income families and SMEs,” said June Won, managing director of capital markets origination at Citigroup Global Markets Korea Securities Ltd., the top arranger of Korean offshore bonds. “Such sales will likely increase further.”While green bonds finance environmental projects and social bonds fund socially beneficial ventures, sustainability notes have a broader choice of goals as they fund either green or social projects.Read more about Korea’s recent dollar bond sale Asia’s fourth-largest economy is following the global expansion in issuance of debt to pay for environmental, social and governance projects. Offshore sales of green, social and sustainability bonds by Korean issuers reached $5.8 billion this year, compared with last year’s full-year offerings of $4 billion and $699 million in 2017, according to Bloomberg-compiled data.(Adds tout.)To contact the reporter on this story: Kyungji Cho in Seoul at firstname.lastname@example.orgTo contact the editors responsible for this story: Andrew Monahan at email@example.com, Ken McCallumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Moody's Corp NYSE:MCOView full report here! Summary * ETFs holding this stock are seeing positive inflows * Bearish sentiment is low * Economic output for the sector is expanding but at a slower rate Bearish sentimentShort interest | PositiveShort interest is low for MCO with fewer than 5% of shares on loan. The last change in the short interest score occurred more than 1 month ago and implies that there has been little change in sentiment among investors who seek to profit from falling equity prices. Money flowETF/Index ownership | PositiveETF activity is positive. Over the last month, ETFs holding MCO are favorable, with net inflows of $8.98 billion. Additionally, the rate of inflows is increasing. Economic sentimentPMI by IHS Markit | NegativeAccording to the latest IHS Markit Purchasing Managers' Index (PMI) data, output in the Financials sector is rising. The rate of growth is weak relative to the trend shown over the past year, however, and is easing. Credit worthinessCredit default swapCDS data is not available for this security.Please send all inquiries related to the report to firstname.lastname@example.org.Charts and report PDFs will only be available for 30 days after publishing.This document has been produced for information purposes only and is not to be relied upon or as construed as investment advice. To the fullest extent permitted by law, IHS Markit disclaims any responsibility or liability, whether in contract, tort (including, without limitation, negligence), equity or otherwise, for any loss or damage arising from any reliance on or the use of this material in any way. Please view the full legal disclaimer and methodology information on pages 2-3 of the full report.
(Bloomberg Opinion) -- After more than a decade, it appears green bonds are finally taking root.So far this year, countries, companies and local governments across the globe have sold about $89 billion of bonds to fund projects that are good for the environment, data compiled by Bloomberg show. Bloomberg Intelligence analyst Jaimin Patel estimates the current run rate will put global non-asset-backed green bond issuance at more than $182 billion for the year, which would easily top 2018’s $133 billion and 2017’s $128 billion. More important, it looks as if the market is returning to steeper growth after last year’s stagnation.To be clear, the Climate Bonds Initiative’s stated goal of $1 trillion in yearly green-bond issuance remains a ways off. But 2019 has brought signs that it’s not just a pipe dream. May’s $23.8 billion was the second-highest monthly volume on record. Those who borrowed last month included the Netherlands, whose 5.98 billion euro ($6.7 billion) deal represented the first sovereign green bond ever sold by a triple-A rated country, according to Moody’s Investors Service. And it’s not just that issuers are stepping up — investors are, too. The Netherlands’ order book swelled to 21.2 billion euros in less than two hours.Nor is the green-bond wave showing any signs of cresting. Just this week, issuers on three continents laid out plans to borrow: Chile brought a 30-year green deal to market, Korea Electric Power Corp. priced $500 million of five-year securities, and EDP Finance B.V., a Portuguese issuer with ratings one step above junk, set up investor calls for its green-bond debut. And that doesn’t even include Connecticut, which plans to issue $250 million of top-rated green bonds for water and wastewater projects.Speaking of Connecticut, its two U.S. senators, Chris Murphy and Richard Blumenthal, are among the five Democrats who last month introduced legislation that would create a United States Green Bank. They would capitalize it “with up to $50 billion as a wholly-owned corporation of the United States government, under the direction of the Secretary of the Treasury.” It would “finance clean energy projects by capitalizing regional, state and local intermediary institutions (e.g. state Green Banks), which then directly finance eligible projects.”The likelihood that proposal goes anywhere, given the current makeup of Washington, is probably slim at best. But it speaks to a broader feeling that green bonds are more than just a clever marketing gimmick — they’re here for good, and investors and issuers alike ought to start planning accordingly. In one example, a panel of experts on sustainable financing appointed by the Canadian government released a report last week that said green bonds should have tax breaks like U.S. municipal debt to create a more well-functioning market.This sort of growth and widening acceptance was by no means inevitable. Just a year ago, I wrote that the green-bond market appeared to be stuck in infancy because of self-designating and a general lack of enforcement. And, indeed, last year’s offerings pointed toward a market that was plateauing even though the existential threat of climate change was put in stark relief by the United Nations.It’s not entirely clear what changed. Maybe countries and companies truly are reacting to the U.N.’s October report, which argued that the world has 12 years to avert catastrophic climate damage, and just needed time to get their financing in order. Regardless, the diversity of borrowers coming to market stands out as an important trend. About 39% of issuance in the first five months of 2019 came from countries other than China, France, the U.S., Germany, the Netherlands and Sweden, the most since at least 2014, Bloomberg data show. According to Patel, this is “important to ensuring the stability of longer-term growth in the green bond market, while limiting the impact of one-time spikes by established issuers.”Before declaring that bond investors are saving the world, remember that details matter in these deals. There’s still no catch-all for the green-bond market, which is clear from looking at the Climate Bonds Initiative’s website. As of June 17, it shows $90 billion of 2019 issuance, divided into $69.5 billion of “labeled green bonds aligned with CBI definitions” and $20.5 billion of “Certified Climate Bonds.” Excluded from that total is another $22.2 billion of “labeled green bonds not aligned with CBI definitions.”(1) It’s useful and transparent that the group breaks it out like that, but that’s still a sizable amount of debt that in some ways is green in name only.CBI’s own estimate for 2019 green-bond sales is $250 billion, or an almost 50% increase from last year. That’s impressive for a market that several years ago was little more than a novelty and represents a return to the rapid growth that characterized pretty much every period except 2018. My hunch is the steady drumbeat of climate change has become loud enough to persuade countries and companies to look beyond the short term when preparing to borrow. Yes, it’s extra work for issuers to verify every year that they adhere to a set of principles, but that’s likely the most onerous during the first go-round. For institutions with the largest amount of green bonds outstanding, like the European Investment Bank, France and KfW (the German state-owned development bank), economies of scale come into play.Call it a comeback for green bonds. The uptick in debut issuers, in particular, suggests that environmentally friendly financing might finally be sinking its roots into the global debt markets. (1) According to CBI, this has to do with guidelines from the People’s Bank of China on green bonds that don't conform with the Climate Bonds Initiative's taxonomy. It includes debt that funds upgrades to coal-fired power stations and large hydropower electricity generation, along with securities with more than 10% of proceeds allocated to "general corporate purposes."To contact the author of this story: Brian Chappatta at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Turkey’s central bank is introducing a new and cheaper liquidity facility for lenders in the latest effort to support the country’s battered markets.The interest rate on the new facility, which will be used through overnight repo transactions within predetermined limits, will be set at 100 basis points below the central bank’s benchmark of 24%, the monetary authority said Monday in a statement on its website.The limits will be determined by taking into account the amount of government domestic debt securities purchased by primary dealer banks through Treasury auctions, according to the central bank. “This facility will have a limited share within the overall central bank funding,” it said.A downgrade of Turkey’s sovereign credit rating by Moody’s Investors Service last week risks eroding already shaky confidence in the nation’s assets days before a controversial rerun of Istanbul elections. Authorities have adopted increasingly interventionist policies in the face of an exodus of foreign capital that’s driving up yields on government bonds and piled pressure on the lira.“This measure was taken because the Treasury thinks foreign investor interest in auctions will be subdued after the latest Moody’s downgrade,” said Onur Ilgen, Istanbul-based treasury manager at MUFG Bank Turkey AS.Regulators last month ordered Turkey’s pension funds to maintain a minimum amount of local stocks and government bonds. Local banks were also asked to bid for more bonds than they needed in their roles as market makers in debt auctions, according to people familiar with the matter.The average cost of central bank funding would go down by 10 basis points for every 10% of liquidity extended through the new facility, according to Erkin Isik, senior economist at QNB Finansbank.“My understanding is that the impact on monetary policy will be very limited,” Isik said. “The main purpose is to support Treasury borrowing.”(Updates with economist comments starting in fifth paragraph.)\--With assistance from Inci Ozbek.To contact the reporter on this story: Cagan Koc in Istanbul at email@example.comTo contact the editors responsible for this story: Onur Ant at firstname.lastname@example.org, Paul Abelsky, Constantine CourcoulasFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Just as India’s banks emerge from under a pile of bad loans to large energy, steel and other industrial companies, they are facing a new reckoning from the accelerating crisis in the country’s shadow banking sector.A year after a series of defaults by Infrastructure Leasing & Financial Services Ltd. forced the government to intervene and exposed weaknesses in the sector, the problems of India’s non-bank financial companies are entering a new phase. Other weaker lenders such as Dewan Housing Finance Corp. and Anil Ambani’s Reliance Capital Ltd. are struggling, putting the loans they received from a handful of the regulated banks at risk.“There will be some defaults, some additional slippages on banks’ books from the NBFC sector and that will be reflected in the performance of some of the bank stocks, which are more exposed to the weak NBFCs,” said Suresh Ganapathy, an associate director overseeing financial research at Macquarie Capital Securities in India.Among the most vulnerable is Yes Bank Ltd., which has seen its shares plunge 65% in the past year amid wider worries about its lending policies. Last week, Moody’s Investors Service put Yes Bank under review for a downgrade, citing its “sizable exposure” to weaker companies in the NBFC sector.Yes Bank and IndusInd Bank Ltd. may face higher than expected credit costs due to their lending to companies related to large leveraged corporates, UBS Group AG wrote in a June report. The lenders showed the greatest vulnerability to new risks emerging in this area and from non-banks and real estate firms, it said.Rapid ExpansionCredit Suisse Group AG in April identified the two banks as having greater exposures to four stressed groups -- Anil Ambani’s conglomerate, Dewan, IL&FS and Essel -- along with Bank of India, Bank of Baroda and State Bank of India.Loans from the shadow banking sector expanded rapidly in the period up to the IL&FS defaults, a time in which the regulated banks were in the depths of a bad-loan crisis, weighed down by some $200 billion of soured credit. Non-banks accounted for nearly a third of all new credit over the previous three years, with some of the loans going to riskier sectors like infrastructure and property development.The lending binge was funded by bond issues and credit from India’s mutual fund companies, in addition to loans from banks. Since last year, the process has gone into reverse, with Dewan the latest to fall victim to tightening liquidity among NBFCs. The firm’s short-term credit was downgraded to default by the Indian unit of Standard & Poor’s earlier this month. Ambani’s Reliance Capital has been selling assets to meet its repayments.The spreading debt woes have fueled talk that the shadow banking crisis is entering a second, more dangerous, phase, posing broader risks to the Indian financial system. Some -- including Ambani -- have been calling on the government and the Reserve Bank of India to take emergency steps to revive lending, such as flooding the banks with liquidity.What an Indian TARP Program Might Look Like: Andy MukherjeeFor the moment, however, the regulator doesn’t appear to view the crisis as systemic. At its policy meeting earlier this month, the RBI indicated it viewed liquidity conditions as broadly sufficient and would improve transparency around how it assesses this.A spokesperson for IndusInd Bank said its exposure to NBFCs and housing finance companies, as a proportion of the loan book, is modest at 3.2% and 1.1% respectively, and standard.Bank of Baroda’s exposure to NBFCs and housing finance firms “is high, however, we are derisking ourselves by entering into pool purchase, co-origination of loans etc., by which we get an adequate feel on the underlying assets,” Executive Director Papia Sengupta said by email.Yes Bank, State Bank of India and Bank of India didn’t respond to emails seeking comment.Ganapathy at Macquarie says NBFCs will face a continuing credit squeeze but the spillover to the banks will be limited and is unlikely to create a system-wide problem. Indian banks as a whole have extended no more than 6%-7% of their total loans to NBFCs, and only 10% of that is likely to sour, Ganapathy added.That’s also the verdict of the Indian markets, which have seen bank stocks recover strongly following the dip after the IL&FS defaults last year. The S&P BSE Bankex index is up about 8% since the end of August, and has only wavered briefly during the latest phase of the crisis.To contact the reporter on this story: Suvashree Ghosh in Mumbai at email@example.comTo contact the editors responsible for this story: Marcus Wright at firstname.lastname@example.org, Candice ZachariahsFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Faced with the choice of accepting rent cuts or hunting for new retailers to fill hundreds of stores, U.K. mall owners are swallowing their medicine.Some of Britain’s biggest commercial landlords including Hammerson Plc and British Land Co., voted in favor of a rescue plan for billionaire Philip Green’s Arcadia Group that meant having to accept dozens of store closures and rent cuts of at least 25% at almost 200 sites.But their approval for the so-called Company Voluntary Arrangement was grudging and highlights how much pressure they are under from the pain inflicted on retailers by consumers choosing to shop online rather than in department stores.Land Securities Group Plc, Standard Life Aberdeen Plc and the Crown Estate had intended to vote against Arcadia’s proposals and switched at the 11th hour, according to people familiar with their plans who asked not to be named discussing information that isn’t public. One landlord, Intu Properties Plc, voted against, calling the deal unfair to tenants that pay full rent.“It really is like being stuck between a rock and a hard place,” said Daniel Swimer, property litigation partner at law firm Joelson. “Landlords could have rent reductions forced upon them or, if the CVA doesn’t get passed, they’re left with a large retailer failing in the current retail climate.”Deal ApprovedThe fact the deal was approved is likely to put further pressure on mall rents and values, and raises the possibility that commercial property owners could be tipped into a crisis similar to that faced by the retailers who make up some of their biggest tenants.The cost of insuring Land Securities’ debt against default saw the biggest daily rise since December on the day after the Arcadia vote, according to ICE Data Services. Moody’s Investors Service warned of possible damage to the creditworthiness of retail property owners that already face “weak operating performance, with declining footfall and retail sales, and downward pressure on rents.”The landlords came under pressure from Arcadia to back the deal or put about 18,000 jobs at risk if the company was forced into administration, people with knowledge of the negotiations said. Several were told they would be shirking their social responsibilities and be blamed for job losses, an accusation they resented, some of the people said, asking not to be identified as the talks were private.Arcadia representatives declined to comment.Ultimately the decision to back the CVA came down to the best commercial interests of the landlords, given that they could be left with empty sites if Arcadia fell into administration, two of the people said.Spokesmen for Land Securities, the Crown Estate and Standard Life Aberdeen confirmed they had backed the plans but declined to comment on the detail of the negotiations. Representatives of Hammerson and British Land declined to comment.Smaller CutsWhile many companies have preceded Arcadia’s CVA, few have been so large and many secured less generous rent cuts. The risk is that following Arcadia, other retailers now demand the same, even those that have previously undertaken rent cuts.“There’s nothing to stop companies coming back for a second bite,” Andrew Hughes, head of European general retail at UBS said at a media briefing last month.Intu has previously highlighted the likely impact of Arcadia’s CVA, saying last month that store closures are worse than expected and it sees net rents falling 4% to 6% this year. The company, which owns eight of the top 20 malls in the U.K., is under pressure itself to sell assets to cut debt and CVAs are hampering those efforts.Falling ValueIntu said in February that a further 10% fall in the value of its properties would cost 1 million pounds in extra expenditures in order to avoid a breach of loan covenants. U.K. Retail property values fell 10.25 percent in the year through May, according to data compiled by broker CBRE Group Inc.Some landlords are pushing back on department store chain Debenhams’ outlet closures which won creditor approval in May. Sports Direct International Plc has grouped together with landlords to challenge the CVA and property investor M&G Investments has launched another challenge, a spokeswoman for the asset manager confirmed.But it will be hard for landlords to stop the trend. Consumers’ shift to online shopping shows little signs of abating and insolvencies have jumped by more than a fifth since 2016, with more than 1,200 retailers collapsing last year.“What is 100% certain is that retailers can’t carry on paying the rents they have historically,” said Richard Hyman, an independent retail consultant. “There’s less money in the pot to fund it and the pain has to be shared by the landlord as well as by the retailer.”\--With assistance from Antonio Vanuzzo.To contact the reporters on this story: Katie Linsell in London at email@example.com;Jack Sidders in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Vivianne Rodrigues at email@example.com, Chris Vellacott, Shelley RobinsonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Moody’s Analytics, a global provider of financial intelligence, has added new accounting and reinsurance capabilities to the Risklntegrity™ IFRS 17 solution. The latest enhancements to its accounting functions include the introduction of a Moody's Analytics chart of accounts, end-to-end accounting logic, and mapping from an insurer's accounts to the disclosures of insurance contracts under IFRS 17. Because the Risklntegrity IFRS 17 solution delivers these and other essential accounting capabilities, insurers can easily populate the chart of accounts and then generate journal entries to allow for a comprehensive movement analysis and a liability reconciliation analysis.
(Bloomberg Opinion) -- The best way to hedge a portfolio of collateralized loan obligations might just be with a new type of CLO structure. No, seriously.Credit Suisse is taking a cue from the U.S. Treasury and mortgage-bond markets and splitting the safest portions of CLOs into two parts: one that pays only interest and another that’s mainly principal. Bloomberg News’s Adam Tempkin saw a presentation from the bank on the structure, known as Mascot, for modifiable and splittable/combinable tranches. In it, the bank argues that the interest-only portion in particular has “the potential to be the cheap hedge a bondholder can construct for a CLO portfolio.”On its face, this looks like peak Wall Street. Spitting up CLOs, which themselves are bundles of leveraged loans, and offering them as a way for investors to protect against large declines in credit markets? Perhaps this is little more than bankers getting creative to get deals done when the alarm over growth in risky corporate borrowing is becoming harder to ignore.Obviously, if you believe that the $1.3 trillion leveraged lending market will eventually face a day of reckoning, and CLOs will go the way of the pre-crisis CDOs, then this sort of structure is probably of little interest. However, as I’ve written before, that seems unlikely to happen for a number of reasons, even if Moody’s Investors Service considers loan covenants to be about the weakest on record. Most likely, as Bank of America Chief Executive Officer Brian Moynihan said, the economy will slow down “and then the usual carnage goes on.” A typical level of losses wouldn’t hit the top-rated segments of CLOs, which famously never defaulted, even at the heights of the financial crisis.So credit-market bloodbath aside, this new CLO innovation might make sense after all.The appeal of Mascot hinges on the fact that asset managers who issue CLOs can typically refinance starting two years after they sold them. This option is extremely valuable to borrowers. If credit spreads tighten during that period, they can come to market again and get cheaper funding. If spreads widen, well, they’ve already locked in cheaper funding.On the flip side, this refinancing option is something of a lose-lose for investors because the CLO issuer will effectively do the exact opposite of what they’d prefer. Conditions that encourage refinancing, by definition, mean buyers will have to reinvest at tighter spreads and accept reduced returns. As spreads widen, investors are stuck holding on to lower-yielding securities. Neither of these outcomes is detrimental, to be sure, but it can be frustrating.The Mascot structure, when used as a hedge, would smooth out those binary outcomes. In particular, with investors increasingly fretting about a turn for the worse in the credit cycle, the interest-only portions could serve as a useful counterbalance to CLOs, in what Tempkin called “disaster protection”:An interest-only portion of a CLO grows more valuable to investors the longer it pays interest, which is linked to how long the CLO remains outstanding. That’s what makes it a good hedge when times are getting worse for corporate borrowers: When credit spreads widen, CLOs are less likely to be refinanced, lifting the value of the interest-only portion.Credit Suisse’s pitch of the interest-only portions as a hedge naturally raises the question: What about the mainly principal part? After all, it would stand to lose at a more precipitous pace than typical CLOs when credit spreads widen (just as it would appreciate faster if they tighten). Investors apparently are allowed to exchange the original bond for any combination of the stripped portions they want, and in any combination. Given that regulators are pretty much in the dark about the leveraged-loan market as it is, the prospect of adding another layer on top of CLOs might not be the most welcome news. About 85% of the loans are held by non-banks, but, as the Mascot structure makes clear, banks like Credit Suisse still play a large role. As Bloomberg News’s Sally Bakewell and Thomas Beardsworth pointed out in an article this week, “not only do they underwrite the loans, they also sell the loans to the CLOs that the debt is bundled into, invest in the securities and then hedge those risks in the market.”For now, the insatiable demand for leveraged loans and CLOs appears to be cooling, given that the Federal Reserve is no longer raising interest rates and in fact appears closer than ever to cutting them for the first time in more than a decade. That’s actually realigning incentives in the market: Bloomberg News’s Cecile Gutscher and Charles Williams reported last month that CLO managers are taking on more risk themselves — through larger first-loss equity pieces — to do their deals, which in effect is bringing back the skin-in-the-game rules that were abolished last year. As for the CLO splitting, whether it catches on more broadly is anyone’s guess. Tempkin reported that the structure was recently used on deals from Rothschild & Co.’s Five Arrows unit and LibreMax Capital’s Trimaran Advisors. If it’s anything like the $15.9 trillion Treasury market, it’ll remain relatively niche. There were about $303 billion U.S. Treasury Strips outstanding as of May 31. Just as the Strips market isn’t all that liquid, some investors wonder whether the same will be true of the divided CLOs.At the very least, it’s an interesting quirk in the leveraged lending market. Hedge CLOs with parts of other CLOs — it sounds bizarre, but it just might work.To contact the author of this story: Brian Chappatta at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. […]
Moody’s Analytics, a leading provider of financial intelligence, has announced that Greek digital bank, Praxia bank, has selected the Moody’s Analytics suite of regulatory solutions for asset liability management (ALM), IFRS 9, and Basel III compliance. Praxia bank will use the Moody’s Analytics RiskFoundation™ platform to consolidate and centralize risk management data across its organization using one solution. The award-winning platform delivers a standardized single point of control for performing risk analysis and regulatory reporting tasks, enabling the bank to best utilize its IT investment and execute a consistent enterprise-wide risk management strategy.
Moody's Analytics has announced the launch of the Certification of Professional Competence in Mortgage Lending in Hungary, in collaboration with the Budapest Institute of Banking (BIB) and the International Training Center for Bankers (ITCB). The certification program meets the requirements of the European Parliament and Council Directive on Mortgage Credit.
ROSELAND, N.J. , June 5, 2019 /PRNewswire/ -- Private sector employment increased by 27,000 jobs from April to May according to the May ADP National Employment Report ® . Broadly distributed to the public ...
President and CEO of Moody's Corporation (NYSE:MCO) Raymond W Mcdaniel sold 55,422 shares of MCO on 06/03/2019 at an average price of $182.23 a share.
The currency slumped as much as 1.4% and was 1.2% weaker at 14.6210 per dollar by 1:20 p.m. in Johannesburg. Yields on benchmark 2026 bonds climbed two basis points, reversing a drop of as much as four points. The data highlight the task facing President Cyril Ramaphosa’s new administration in boosting investor confidence in the economy as its confronts a yawning fiscal deficit and escalating debt that are putting South Africa’s final investment-grade credit rating at Moody’s Investors Service at risk.
BNY Mellon Insight Core Plus invests in everything from Treasuries to high-yield bonds to emerging market debt. Why it likes the bonds of Citigroup, JPMorgan Chase, and other financial firms.