Profile picture for Rob Cochems

An Investment Firm That Prospered From Past Crises Turns to Mortgages

"The deal was classic Grayken: Lone Star, which has a long history of swooping down on troubled assets, paid 22 cents on the dollar for investments with a face value of nearly $31 billion. Mr. Grayken’s firm even got Merrill to finance 75 percent of the purchase price."

 

Mr. Grayken cut his teeth running Brazos, an entity formed by the Resolution Trust Corporation and Mr. Bass to buy up and work out troubled mortgages from savings and loans. Brazos ultimately posted a 77 percent return on its portion of the portfolio.

 

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July 30 2008 - US
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Profile picture for BuyEqualsRent

Yeah, this truly highlights just how bad it is.  People will say "My God, the assets are really only worth 22 cents on the dollar!" and miss the fact that the whole deal was done by a holding company that holds nothing at all except this debt.  Because Merrill loaned 75% of the purchase price, the actual price paid for the assets was only 5.5 cents on the dollar.  Talk about a haircut.  And when it goes bad, the holding company will fold and walk away from the debt to Merrill.

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July 30 2008
Profile picture for Mr Caveat

think the ceo is shorting Merrill? if he put 5.5 cents on the dollar additional into a short fund he could basically insure himself against all loss, especially if he has a good publicist

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July 31 2008
Profile picture for jal74

Or the flip side.  Lone Star thinks the paper is worth 40 cents on the dollar, is willing through merrill to wait 3-5 years to figure it out since they are private, don't have to report or mark every quarter and are only leveraged 3 to 1 instead of 30 to 1.  I think it will turn out that Lone Star makes good money on these pools.

 

That is my opinion and in no way should any reader construe the above statements as investment advice of any kind

 

Kind Regards

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July 31 2008
 
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