Wednesday August 15 – Skin in the game
"It was PIKs and toggles," he rolls his eyes, as if someone else had forced him to do this deal or cheekily agreed it in his name. "It was covenant lite and even what covenants there were were rubbish ones." After weeks of wrangling over how to bring the senior secured portion of the financing to market, his own banks' team and that of the LBO sponsor were barely on speaking terms.
The day starts unhappily with the news that a Merrill Lynch analyst has put out a sell recommendation on Countrywide, the biggest source of mortgage loans in America, which even discusses the circumstances – the evaporation from a panic-stricken capital market of the liquidity Countrywide needs to fund its holdings of mortgages and the difficulty of selling on any of those assets not eligible for guarantee by Fannie Mae and Freddie Mac – in which it might go bankrupt. The stock loses 13% in a day, taking it down 50% for the year.
Even though problems in the mortgage sector are hardly news, even though something about Countrywide’s perma-tanned CEO has never gained Wall Street’s unqualified respect, even though any financial company could go bankrupt in the circumstances Merrill describes, this company provides more than one in six American mortgages. Simply writing down the theoretical path to bankruptcy makes the idea somehow both real and appalling.
Countrywide shares become a one-way bet
Seeking a little light relief, Euromoney lunches with a senior investment banker in the leveraged finance business at an elegant, if rather quiet, midtown restaurant.