Friday, October 2, 2009

MBIA CRE Exposure - Nothing New here

The WSJ had an article out 9/29/09 titled, "MBIA Downgrade Brings Up Its 'Overlooked' Commercial Exposure". Overlooked by who?

The downgrade was "behind the curve" in drawing attention to potential losses in CMBS insured by MBIA, Hexagon Securities LLC analyst David Havens said in an interview Tuesday. "All you need do is look at levels of credit default swaps trades for MBIA. It has been treated as a distressed credit for 18 months."


J.P. Morgan analyst Andrew Wessel said in a Tuesday note that MBIA's CMBS portfolio "is largely overlooked by the market," and he estimated potential losses of $7.5 billion on the holdings.

I refer the author to the January 9, 2008 (that is an eight - nearly two years ago) analysts call and presentation from MBIA (sorry no link, I'll work on it) when they discussed their structured products exposure and subsequently slashed their dividend. This was followed by a firestorm of research from various firms including a complete list of 998 MBIA-wrapped transactions rated by Moody's, from Moody's, dated January 17, 2008 (again, sorry no link, but if you have a Moody's login, search for MBIA and check for the date).

Or, just look at their January 31st, 2008 press release where they note that Q4 2007 losses were almost entirely attributable to CMBS and RMBS.

Approximately two-thirds of the Company's fourth quarter $3.4 billion mark-to-market loss on the insured credit derivatives portfolio resulted from wider spreads for CMBS and RMBS collateral and the remaining one-third was primarily due to ratings downgrades of the collateral comprising insured credit derivatives for multi-sector CDO structures.

Even excluding CDOs and ReREMICs with CRE collateral, a cursory search shows nearly 50 CMBS deals with wraps. Given it wasn't done on the primary sector, Conduit & Fusion deals, it was not uncommon on Net Lease deals and virtually every GMACN military housing transaction had a wrap from MBIA.

Just because the journalist and one of the guys he interviewed were not aware of MBIA's CRE exposure, shouldn't imply that the rest of the market is not aware. I was on that January 9th, 2008 call, and still have my notes and recall it very clearly - mainly because I was surprised by the large amount of CRE exposure, and particularly CMBS exposure given that wraps are uncommon on regular ol' CMBS deals.

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