Even a spectacular subprime wipeout like ResMae has value: Citadel is buying it out of bankruptcy for $180 million.
I don’t see any answer to the biggest question of all, though: Will Citadel still be forced to buy back loans which ResMae originated and which went immediately into default, or loans which were fraudulently misrepresented by ResMae to investors when ResMae securitized them?
It seems to me that originators going bust is one of the biggest risks in the subprime MBS market at the moment. How big is that risk, now, in the wake of the ResMae outcome?
(Incidentally, do not, under any circumstances, confuse Citadel and ResMae with Cerberus and ResCap. I know, it can get confusing.)
You really should headline this one with $20m, not $180m. “..will pay about $20 million for ResMae’s lending business and 98.5 cents on the dollar for the company’s $160 million loan portfolio..”
Which is to say, the bonds are still worth something, the business appears not to be worth much at all. $0.02B is a pimple on Citadel’s $13.4B AUM. Since CS offered, “$19.1 million, plus 98 cents on the dollar for the loans, in a bid laced with conditions,” I bet the bonds actually are worth a little, the business, not so much, and that Citadel is taking on some additional risk that their lawyers, as distinct from CS’s, think they can handle.
WCW, do you mean the bonds are worth something, or the loans? Two different things.
As for what Citadel is paying for: ResMae is in bankruptcy. Its EPDs, etc, are now in the hands of the court and creditors to sort out. Selling what the firm has left is part of that. In other words, Citadel ought to be buying NO risk to old loans at all. That is the hell and the beauty of chapter 11, depending on your perspective.
Why did Citadel pay more than CS? Well, that’s surely all about what an intermediary can make from repackaging loans vs what a potential end investor can save by bypassing the middle man.