Saturday, April 25, 2009

Will TALF Ride to CDO Rescue?

Two booms occurred simultaneously. Widespread cheap credit fueled both a housing bubble and a private equity buying spree. Housing is deflating as are corporate asset values. Some instruments were less than long term. That means refinancing is needed. NYT reported:

Moody’s reports that leveraged companies need to refinance $26 billion in loans this year, $44 billion in 2010 and $120 billion in 2011. If credit markets remain tight, we could see lots of defaults even among companies that are doing well enough to make their interest payments.
The TALF program aims to restart credit via securitized debt. It's slated for expansion into corporate and commercial real estate loans. Will refinancings be covered in the debt packages? If so, that explains the Carlyle Group's participating with Treasury in its smattering of innovative solutions. Ignore that the new collateralized debt obligation (CDO) looks a lot like the old. Restart greed with a tad less leverage...