Monday, 4 November 2013

Say AAA!

A shiver of Déjà vu ran down my spine when I read in the FT today that private equity giant Blackstone will this week be offering investors a "novel security", a $479m portfolio of over 3,000 foreclosed homes, backed by the cash flow from rents.

Novel? Hmmm. It sounds faintly reminiscent of the legions of homes (possibly many of them the same ones) that were packaged, sliced, diced and fricasseed into bold new financial products ... that eventually took the world down with them in the last boom.

The bonds are priced at “low to mid 100 basis points” over swaps, "people familiar  with the deal" excitedly told the FT. And, in another blast from the past, three ratings agencies including Moody's seem happy to slap AAA ratings on the most senior $279m slice of the securitisation, a move that the FT reported was greeted with surprise by some market participants who thought a single A was the best that a non-tested product of this type would likely command.

Moody's justified the triple-A by stressing that Blackstone would be able to sell its properties if tenants stopped paying their rent. Others murmured that it would be hard to liquidate such large portfolios in the case of widespread defaults or voids

Now this product clearly sounds a lot more plain vanilla than some of the more exotic financial weapons of mass destruction that marked the heady last days of the Noughties boom. But, on hearing Moody's view, I can't quite get the words "heard that one before" out of my head. 

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