Thursday, September 12, 2013

Hilton IPO

Blackstone filed for a $1.25 billion IPO on Hilton. This would be used to "pay down debt" according to the Bloomberg article that is out today, but is a drop in the bucket compared to the $9 billion senior mortgage that was structured in 2010 with a piece in BALL 2010-HLTN, and another ~$10 billion in mezz debt done at the same time. Previous Hilton stories can be found here.

Bloomberg also notes that Blackstone has had two other IPOs in the past year: SeaWorld Entertainment Inc ($807.3mm, April - up 6%) and Pinnacle Foods Inc. ($667mm, March - up 35%).

How will a lender ever do business in Richmond CA again?

It was reported yesterday that Richmond California has approved the plan to use Eminent Domain to condemn underwater mortgages. has the best review.

We've discussed it in detail previously but the most obvious negative impacts boil down to:
  • Lenders will likely flee the market now that the City has created a new law effectively nullifying centuries of contract law. I certainly would not write a mortgage in a municipality that would invalidate it because the collateral value had declined (shouldn't the borrower post MORE collateral in this case?)
  • Borrowing costs to individuals are likely to increase dramatically if any lenders remain in the market. The risk to the Lender just went through the roof, they're going to require compensation to offset the risk. This may come through a rate increase or some innovative product such as a home price protection swap or insurance (not mortgage insurance, but systemic price protection "insurance").
  • The risk extends to the city and will make it very costly to borrow money at the municipal level. As the Zerohedge article highlights, this has already happened - the city is going to be mired in lawsuits for decades, but somehow has failed to see the future despite a suit already filed in district court with the first motion hearing next week.
  • The ripple effects will damage home prices in the city substantially. The first person who wants to sell their house will discover that there are no buyers (unless they're all cash) because there are no lenders. The lower home prices will likely cause the city to try to condemn additional mortgages as it slowly amputates whatever remaining value there is in the local housing market.