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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (71900)	2/26/2001 2:52:29 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 436258

it can't hurt to take a look at the 'good old times' now and then...:)

To: Box-By-The-Riviera™ who wrote (71900)	2/26/2001 2:58:01 PM
From: pater tenebrarum	Read Replies (3) \| Respond to of 436258

RISK...just another four letter word? David Clementi, deputy-governor at the Bank of England, has issued a warning about the danger that credit derivatives and their use in securitization pose to the stability of the capital markets. In the closing address to the International Bond Congress in London, Clementi surprised an audience of top borrowers, investors and bankers with his concerns at the rapid growth of credit derivatives and ABS - which many investment banks hope will bring back revenue lost from the shrinking profits in bond trading and underwriting. Clementi said there was a danger of a lack of transparency in the market, particularly because of the increase in the use of synthetic CLOs, where the risk attached to loans and bonds is sold on to counterparties, without a sale of the assets. He said: "These markets mean that a bank need no longer remain exposed to its main customers but can rapidly take on large exposures to other credits without any new borrowing by the underlying entities. This could make it more difficult for creditors, shareholders and regulators to assess risk." Clementi said it was a "major challenge" for authorities such as the Bank of England or the Federal Reserve to keep pace with the rapidly changing world of securitization and derivatives in collecting financial statistics. Clementi is also concerned that many investors do not understand securitization. He said: "Some participants in this market may not fully understand, or may have differing understandings of , the transactions into which they have entered." Clementi said uncertainties remained about how courts in different countries would treat covenants and agreements in credit derivative deals. The case of LTV Steel illustrates Clementi's concern. LTV Steel is engaged in a legal battle with Abbey National in Cleveland in the US over whether the assets securitized in a deal are the property of Abbey National or LTV Steel. The judge at the bankruptcy court in Cleveland, to the consternation of many participants in the securitization market, appears to favour LTV Steel's case, though Abbey National has told euromoney.com it is likely to appeal if it loses the case. Investors, because of this risk, have to make sure they have conducted proper due diligence, said Clementi, adding: "I do think that there is too great a tendency to rely unthinkingly on the ratings agencies in this area." Clementi also said that the merging of the lending, securities and insurance markets raised new risks. He said this risk was particularly evident now due to the international debate over whether restructuring of debt constitutes a credit event, thereby triggering a credit default swap. This row was sparked when Conseco restructured its debt late last year. The International Swaps and Derivatives Association is meeting now to discuss the issue. The British Banking Association has predicted that the credit derivatives business will triple from $586 billion in 1999 to $1.581 billion in 2002. euromoney.com

To: Box-By-The-Riviera™ who wrote (71900)	2/26/2001 3:00:38 PM
From: pater tenebrarum	Respond to of 436258

Telco credit woes to worsen: Standard and Poor's is warning that telecoms credit problems are likely to get worse before they get better. Duncan Warwick-Champion, the director of corporate ratings at director of corporate ratings at S&P, says that pressures on the sector will remain high throughout the year. .............................The number of ratings of CCC or below has also risen, signifying that Standard & Poor's expects defaults from those companies in the next six months. The sector as a whole is facing problems with credit deterioration and liquidity concerns. ....................... The fundamental problem that telecoms operators face, says Warwick-Champion, is that their plans to reduce their debts depend on market conditions. While stock prices continue to fall, based on negative sentiment, these plans are severely compromised. Asset disposals, IPOs and equity raising are all unlikely to find much demand, because of the imbalance between supply and demand. But he stresses that the recent rating changes are not just a reaction to an isolated funding requirement. Problems caused by UMTS auctions and network building expenses are exacerbated by pressures from increased competition and regulation, especially in Germany. The costs of expansion into new and uncertain markets and business lines is also expensive. But the billions of euros spent on next-generation UMTS licences are the biggest burdens the companies face, particularly since the revenues UMTS will generate are so uncertain. "Financial policies changed around the advent of UMTS," says Warwick-Champion. "Operators started to try to put consortia together, and to achieve pan-European coverage." The expenses incurred have proved to be heavy. In the coming months, Standard & Poor's intends to give operators time to carry out agreements to repair their balance sheets, before making any more downgrades. These repairs will entail reducing debt-to-earnings ratios to agreed levels. France Telecom, for instance, needs to cut its debts to five times earnings by 2002 to keep its A rating. These are interim guidelines, though, and companies will need to grow through them to keep their ratings in the longer term. And Warwick-Champion questions whether even these interim targets are realistically achievable. He views with suspicion the alternative strategies that have been proposed to reduce the operators' debts. Sale and lease-back of assets such as lines and exchanges is dismissed as a debt reduction strategy. And securitization of receivables, while it may bring some improvement, will be of minor benefit at the corporate rating level. He is also concerned about contractual subordination. Existing bondholders will not be happy if assets acting as security for their bonds are removed and used to back new debt. Indeed, existing debt could be downgraded. And, separately, a parent company could be hit by its subsidiaries' debts in the event of a default. Standard & Poor's has recently provided floors of BBB and BBB+ respectively for the ratings of KPN and France Telecom. Warwick-Champion points out that these assume that these companies' broad debt-reduction strategies do not change. Deutsche Telekom still faces uncertainty over its planned flotation of its VoiceStream and T-Mobile subsidiaries. And BT has been giving out confusing signals over its plans - it is unclear how much debt will be loaded onto its subsidiaries when they are spun off, and what assets will remain to secure its debt. Telefonica is not burdened with the same debt problems as other companies, but it is trying to expand into new markets where it has no presence. In most cases, Warwick-Champion believes, event risk is considerable. Consolidation may be the only solution. Warwick-Champion finished his presentation by analysing potential mergers. The biggest problem facing any such attempt is Germany. German UMTS licences cost Eu10 billion and operators can not sell them to another private party, so if two operators that both own one merge, one of them will have to give back its licence to the state. This will leave a big hole in its balance sheet. Furthermore, EU antitrust authorities may frown on any attempted mergers, having worked hard over the last two years to increase competition. Warwick-Champion suggested Deutsche Telekom/Telecom Italia and Telia/Telenor - a merger that broke down some time ago - as two of the more hopeful combinations. This may well be a year of consolidation, though who and when remain unclear. Warwick-Champion suggests that ratings may finally stabilize by the end of the year. Analysts estimate that the sector needs to raise Eu54 billion in the debt markets this year. The effort may be too much for several of the weaker players. euromoney.com