Monday, October 21, 2013

What Kind of Cash Can Bondholders Expect for Deeply Discounted Bonds? Trepp Looks Back at Losses Over the Last Five Years




 NEW YORK, NY -- Trepp noted last week (as well as today) that CWCapital would be selling more than $2.6 billion of non-performing assets over the next two months, and that  CMBS mezz buyers would have to figure out which liquidations could result in big repayments of existing interest shortfalls.

This news proved timely for some research we've been working on, in which we determine how much written-off bonds have been receiving on average in the months before their balance gets written off.

Since the credit crisis began in late 2008, over one thousand bonds have seen their balances written off to zero. As we've learned over that time period, many of the tranches get sizable payoffs in the months before (or in the month of) final write down.


These sizable cash flows normally come from recovery of ASER amounts that flow through a deal's cash flow waterfall, paying back accumulated interest shortfalls along the way.

To get a sense of what investors have been receiving from these "dead tranches walking," Trepp asked their data team to comb through the rubble to come up with some metrics. As you will see, there is sometimes gold in them hills.

To start, the team looked only at tranches that have been written down in full. The universe of deals included only conduit deals and issues from 2005 through 2008.

Overall, 1,149 tranches (excluding rake classes) have been written off entirely. Of this group, 15.3% of the classes were original first loss classes and 14.6% were second loss classes. For all 1,149 bonds in the group, we summed up all cash flow over the prior 12 months (including the month of final write down) to get a sense of how much cash these bonds were generating.

For a complete copy of the company’s  news release, please contact:

Eric R. Gerard
Senior Vice President
Great Ink Communications
27 Union Square West, Suite 205
New York, NY 10001
(212) 741-2977


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