Friday, July 10, 2009

Marathon And SIFMA All Over Heads I Win, Tails You Lose

SIFMA's Tim Ryan runs like the plague from answering the question of whether he would invest in PPIP's garbage assets without the government's backstop. However, both he and Marathon's Bruce Richards are dying to use 14x riskless leverage in a wishful effort to restart securitization. David Faber: "Win win for you, no real downside, but you are ultimately going to be paying inflated prices for assets instead of true price discovery, what do you say to that." To which Bruce has a meandering explanation which concludes with: "Taxpayers do benefit, because we believe the returns on these assets are incredibly attractive."Bruce, if they are "incredibly attractive", why not just let taxpayers provide the last slab of equity and pocket all the upside - after all they are footing all the risk up until the critical top layer of the investment tranche? As you disclose in your presentation you are familiar with capital structure: perhaps you could answer that specific question for all of Zero Hedge's readers and all of your new potential investors.

And quite a few potential investors these would be: being the smallest of the PPIP participants (by a big margin at that, which begs the question: where is Och Ziff, where is Highbridge, where is MatlinPatterson, where is SAC, where is Silver Point... actually never mind on Silver Point... all these bigger and more successful funds did not apply for PPIP or did not get selected... Inquiring minds would love to know why) you have to raise about 10% of your total AUM. Not only that, but one imagines the traditional LPs who got skewered on the Marathon's recent forays into "liquidating trusts" can not be all that excited about dumping more cash, even with the promise of "incredibly attractive" returns dangling like a skewered worm on a fish lure.

Of course, none of this is to say anyone here is to blame: when the government tells you, and in fact encourages you, to grab taxpayer cash with both hands and virtually guarantees profits you would have to be a fool not to get involved. Especially since these securities, as Bruce pointed out so astutely were "issued at LIBOR + 25 and are now trading with yields in the teens." How could one possibly lose money on that: now that is an arbitrage one could sink their teeth into.

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