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Non-Tech : Subprime News

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From: Sam Citron	7/5/2007 4:38:26 PM
	of 64

Veteran investors prophecy doom for CDOs and CLOs, FT and Reuters report News Digest, 4 July 2007 Financial Times today reports that Anthony Bolton, the veteran Fidelity fund manager, has added his voice to a growing chorus of warnings over structured credit risks. Speaking yesterday at the Fund Forum 2007 in Monaco, Bolton likened instruments such as CDOs to the split-capital investment trusts that brought losses for many investors amid 2002’s stock market downturn. Bolton also expressed concern over CLOs and questioned the assumptions upon which their models are based. He said that prime brokers will cease to allow such valuations and will favour those “based on the market.” Aberdeen Asset Management chief executive Martin Gilbert echoed Bolton’s comments at the same conference. FT notes that market participants see a growing interdependency of structured finance CDOs, created by the vehicles’ wide investment in each others notes. Yesterday Reuters reported a senior private equity executive’s warning that debt financing for leveraged buyouts could start drying up imminently. Drawing parallels with the collapse of the US subprime mortgage market, managing partner of buyout firm Alchemy Jon Moulton said the two markets are similarly structured and have, “an enormous number of parallels.” Fishknife says: Bolton, Moulton et al have good reason to be worried since CLOs are fuelling the buyout boom which is generating private equity returns and propping up share valuations. The interdepency of leveraged loans and the US subprime assets was demonstrated last month when ABX's fall to new lows was accompanied by a drop of more than a point in the LCDX index. Traders expressed a belief that while fundamentals for loans had not changed the asset suffered from being held by vehicles involved in the ABS space and faced a race for the door from investors wary of exposure to risky assets.

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