Popular in Course
verified elite notetaker
Popular in Business
This 44 page Document was uploaded by an elite notetaker on Monday December 21, 2015. The Document belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 11 views.
Reviews for BlackRock-presentation-on-AIG-Counterparties
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 12/21/15
CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Maiden Lane III Counterparty Brierers November 5. ZOOS ___________________________________________________________B_L__R_O _K______ SOLUTIONS" CONFIDENTIAL FRBNY-TOWNS-Rl-192338 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Societe Generale _________________________________________________________R_ _1_<____ SOLUTIONS" 2 CONFIDENTIAL FRBNY-TOWNS-Rl-192339 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Societe Generale Negotiations Negotiating Position: Societ(Soc Gen) views the substantiarecoverion COOs and the funding benefit from posting as providing great negotiating leverage o Soc Gen believe:recovewiLLexccoLlateraLsho rtfaLls under the CDS. BlackRock cash flow projections support this view • Cash flow projections discounted at bond coupon in the base case indicate that Soc Gen'; portfolio is of higher quality than other c(based on projecteanfor Soc Gen vs. BlliSfor all counterparties) • The funding benefit Sofrom AIGon coposted is the spreUSOR and Fed funds (Soc Gen receivUSOand paysAIG Fed funds) Concessions: Soc Gen has been unwilling to COOs to AIGbelow par • Soc Gen would betdeep concesi.e .. anythithan a few pointsit believes economic value from coand experecoveron COOs are worth more than par in some cases • Soc Gen expwillintounwind lowesttradeat an effprice~9but only if theretains referenCOOs (for a COO pr30%Soc Gen k705collatrecei20%more in cash from AIG. keeps the bond and theand rips up CDS with AIG). would not be acunder the contemplated structof Maiden Lane III. Access to the Assets: We believe that Soc Gen owns mostassets in its portfolio (-$14bof$16.4bn) • -S2bn \/I'orthoassets may have been soLd to GoLdman Sachs • We have heard second· hand Soc Gen has pmuch of the portfolio to the Fed discount window for future liquidity Other Factors ______ _~!~!1~__:!~~!_.:!~.~_~~_~lL~~_~_~ __~1~p~__~~_~~~__9!_~~_~~_~~_~1~_~~:~_~~!!~~__~~_~~~!~~_~!~:_!~_a~~_~R_t~J!_1~<~_l! for 2 detota~S650oMf notional exposure SOL urI 0 N5" 3 CONFIDENTIAL FRBNY-TOWNS-Rl-192340 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Societe Generale Portfolio Overview Societe Generate is the largest counterparty o$16.4biLLirepresenti25\f,of totaL counteexposure $1.4 billion in additional collathas been requested, but not posted as of 10124 • Societe Generale has received collateral independent amounts from a number of bonds that have been downgraded • BlackRock's projected values are in line with values implied by collateral posted, but higher than collateral requested, i.e" BlackRock expects the portfolio to perform better byrequested collateral In the base case, Societe Generate's portfolio has similar expected losses to the overall portfolio, but in stress cases, Societe Generate's portfolio deterimore rapidly than the overall portfolio Societe Generale's portfolio is heavily concentrain subprime RMBS and in earlier vintages ·527) of the portfolio i, wmprised of residesecurities, wmpato only 367)for all counterparties .28%of the portfolio i, concin the 2004'Jintage, compared18% for all counterparties There are fewer high quality assets in Societe Generale's portfolio on a relative basis, but the bottom of the credit spectrum resembles the overall portfolio • Onl21%of Societe Generale's portfolio i(vs.J6~overall) • But below Investment Grade is identical between Societe Generale an(187';)otal portfolio _____________________________________________________________,.__B_L _A__C___R__ _1_<____ SOLUTIONS" 4 CONFIDENTIAL FRBNY-TOWNS-Rl-192341 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Societe Generale PortfVS.All Portfolios __________________________________________________________C___ _1_<____ SOLUTIONS" 5 CONFIDENTIAL FRBNY-TOWNS-Rl-192342 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Societe Generale Portfolio vs. All Portfolios ____________________________________________________SOLUTIONS"1_<____ 6 CONFIDENTIAL FRBNY-TOWNS-Rl-192343 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Goldman Sachs ___________________________________________________SOLUTIONS"_1_<____ 7 CONFIDENTIAL FRBNY-TOWNS-Rl-192344 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Goldman Sachs Negotiations Negotiating Position: Goldman Sachs is the least risk aversei.e., the onlycounterparty willinto tear up CDSwith AIG at agreed· upon prices and retain COOexposure • Goldman approached AIGin August to diSCCDScontractsp the • BlackRock has advised AIGon tearing up 9 COSin the Goldman portfolio with a $3bn notional • These transactions were selected because they were distressed positions likely to experience credit events and convert to cash positions in the next few years (comrerting to cash positions reduces an:1 basis between the CDO and CDSvalues) • The bid-offer spread between AIG and Goldman on these CDStear-ups is -$300 million • Goldman has exprwillingne~~gotiatear-uonadditiotrade(ncludin~ynthetAibcacu~ transactions) Concessions: Goldman would likely accept a small cbut may look to its funders to absorb the loss (or a portion of the loss) • Goldman's exposure to AIGis limited to the difference between collateral requested (what they are likely posting to swap counterpaand collateral received at any given time from AIG. While hrisk isthis AIGcounterparty expensive, the cost would translate into no more than 2 points on the whole portfolio • Goldman's swap countare exposed to Goldman Sachs rather than AIG counterparty risk, and are therefore less likely to be receptive to deep concessions Access to the Assets: Goldman has said that it does not hold the cash COOs, but has back-to-back swaps on most of the positions Other Factors _ ~_ __ :_:!~:~~~~~;_~~_~~;;_:;~_:1:;~~_:;j~~_~;!~:=~~~:P~~;~~~:~i~:_~~~~~~:;~~~~_~~~:;~:£~;_~:!~;_~~;:!~~~~L1< Goldman's requested collateral amois gener12~higher than the agreedpbs£lat~'IiriJ~}Nir1i" time 8 CONFIDENTIAL FRBNY-TOWNS-Rl-192345 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Goldman Sachs Portfolio Overview Goldman Sachs is the second largest counterparty 0$14.5 biLlion, representing 22'i of totaL counterparty exposure $1. J billion in additional collahas been requested, but not posted as of 10124 • Goldman', collateral request does not reflectoGoldman prkes per the protocol established with AIG, so at least a12% g,apattrito the haircut will remain as long, as the haircut protocol is effective • BlackRock'sprojected values are hig,herthan collateral requested, i.e., BlackRockexpects the portfolio to perform better than values ibyrequested collateral The portfolio is projected to experience higher tranche principal losses than the overall portfolio in all cases (e.g., 15% higher than the total portfolio in the base case) Despite a significant concentratiin prime/agency RMBS,the overall quality of the portfolio is impaired by a large exposureto Alt-A RMBS ·297) of the Goldman portfprime/agen~sye~uritiwens~entrin a few high-quality~omparedto only 17%for the total portfolio • However, another 26;1)of the portfolio is comprised of Alt-A RfoAB(Svs. 17:t of the total) • Additionally, 55'l;of Goldman's portfolio iin 2005 vintage assets (comp38~total) By rating, Goldman's portfolio is barbelled .381; of assets rated AAA(compa36~)but25~ are below Investment Grade (compared 18%) _____________________________________________________________,.__B_L ___C___R__ _1_<____ SOLUTIONS" 9 CONFIDENTIAL FRBNY-TOWNS-Rl-192346 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Goldman Sachs Portfolio vs All Portfolios __________________________________________________________R _1_<____ SOLUTIONS" 10 CONFIDENTIAL FRBNY-TOWNS-Rl-192347 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Goldman Sachs Portfolio vs All Portfolios _______________________________________________________C___ _1_<____ SOLUTIONS" 11 CONFIDENTIAL FRBNY-TOWNS-Rl-192348 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Deutsche Bank _______________________________________________________C___ _1_<____ SOLUTIONS" 12 CONFIDENTIAL FRBNY-TOWNS-Rl-192349 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Deutsche Bank Negotiations Negotiating Position: Since AIG owns the funded portions of the refeCOOs, terminating Deutsche Bank's financing facility will involve little negotiation • Deutsche is financing AIG'sposition in 2a7 deals, including Project Max (which comprises the vast majority of Deutsche's portfolio with AIG) .AIG believes thatare no early terminpenaltifor ending the funding facility • Ifwere noterminateDeutsche Bank's financing would roll off 3 to 6 year.; in a staggered fashion (and AIGwould fund the reference COOs piecemeal over that period) Concessions: Thus far, Deutsche has not been approachto unwind the facility because of the liquidity benefit that Deutsche has provided to AIG • Because Deutsche's funding commitment to AIG consumes a large amount of firm capital, we believe Deutsche would be amenable to some concession on the sales • Deutsche's financing facility has allowed AIGto delay completely funding the Project Max trade and other 2a7 deals (although AIGhas po~S2.8bcllateral to Deutsche) oAIGwould be the party to sell the reference CDOsintafter providing to Deutsche the full notional balance (minus any collateral already posted) that Deutsche has funded Access to the Assets: Based on anecdotal informatiwe believe that Deutsche is holding the reference COOs _____________________________________________________________,.__B_L ___C___R__ _1_<____ SOLUTIONS" 13 CONFIDENTIAL FRBNY-TOWNS-Rl-192350 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Deutsche Bank Portfolio Overview Deutsche Bank is the third lCDunterparty 0$7.6 billion, representing 11\1,of total CQunterparty exposure • Almost all of theiscomprised of the Project Max CDO, byAAACMBSI eRE $0.1 billion in additional cohas been requestebut not posted as of 10/24 • Although Project Max is not expected to experience any principal losses, collateral posting is driven by CMBX spreads • The difference between BlackRock's model price in the base case and extreme stress case reflect a higher discount rate applied to the base case cashdiscounting atLiBOR for the extreme stress case Deutsche's portfolio has virtuafly no forecast tranche principal losses in aft cases _____________________________________________________________,.__B_L ___C___R_ _1_<____ SOLUTIONS" 14 CONFIDENTIAL FRBNY-TOWNS-Rl-192351 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Deutsche Bank Portfolio Ys. All Portfolios ____________________________________________________SOLUTIONS"1_<____ 15 CONFIDENTIAL FRBNY-TOWNS-Rl-192352 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Deutsche Bank Portfolio Ys. All Portfolios ________________________________________________________C___ _1_<____ SOLUTIONS" 16 CONFIDENTIAL FRBNY-TOWNS-Rl-192353 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Merri II Lynch ___________________________________________________SOLUTIONS"_1_<____ 17 CONFIDENTIAL FRBNY-TOWNS-Rl-192354 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Merrill Lynch Negotiations Negotiating Position: Merrill Lynch feels that its inexfinancing and collaterreceived from AIGlimits any incentive unwind trades at less than par • Merrill has indthat in some cases it has Locked inLong-term financing for the COOs for which it has purchased protection from AIG. In other cases, Merrill's financing is short-term •In discussions regarding sale of tCOOs, Merrill was not willingfinancing under any terms to AIG Concessions: Merrill has been unwilling to sell refCOOs to AIGbelow par oLikeSociete Generale, Merrill will likely be resistant to deep concessions because they are satisfied with the current arrangementDutmayDereceptivtoa small conces,ion • Merrill was not intin tearing up any CDSwith AIG and keeping CDOsreference Access to the AssetsBased on discussions with traders, Merrill owns many of the refeCOOse and finances them with third-parbanks and conduits _____________________________________________________________,.__B_L ___C___R__ _1_<____ SOLUTIONS" 18 CONFIDENTIAL FRBNY-TOWNS-Rl-192355 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Merrill Lynch Portfolio Overview Merrill Lynch is the fourth largest cQunterparty o$6.4bi[lion, representing 10\1,of total CQunterparty exposure There have been no additional collaterequests since 10124 • Merrill requests collateral itown marks (rather than third-party marks) on the positions • BlackRock's projects the portfolio to perform worse tbycollateral requested Merrill's portfolio is projeto experiencehigher tranche principal lasses than the total portfoliunder every scenario The portfolio is heavily overweisub prime and inner COOs ·47% afthportfolio is conceninsubprimeRNlBSIcompared to 36%overall) ·207ofthe portfolio is wmprised of inner COOs(wmpared to 10%for the entire portfolio I .90); is concentin the 2004-2006 vintages (compared to 110%o'Jerall) Only 19%of the portfolio is rated AAA(compared to 36%), while 25% is below Investment Grade (compared to 18% total) _____________________________________________________________,.__B_L ___C___R_L _1_<____ SOLUTIONS" 19 CONFIDENTIAL FRBNY-TOWNS-Rl-192356 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Merrill Lynch Portfolio vs. All Portfolios ____________________________________________________SOLUTIONS"_1_<____ 20 CONFIDENTIAL FRBNY-TOWNS-Rl-192357 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Merrill Lynch Portfolio vs. All Portfolios ________________________________________________________C___ _1_<____ SOLUTIONS" 21 CONFIDENTIAL FRBNY-TOWNS-Rl-192358 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Calyon ________________________________________________________C___ _1_<____ SOLUTIONS" 22 CONFIDENTIAL FRBNY-TOWNS-Rl-192359 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Calyon Negotiations Negotiating Position: Calyon is highly dependenton AIGcollateral posting because of the lower quality of collateralbacking its portfolio, and has been aggressive with collateral requests • Because of independamounts(lAs) of collateraL due to bond down(aLyan's portfoLiweLL'CDlLater byli~ed AIG • Calyon has not been receto tearing up the CDSwith AIG and retthe credit risit(DO positions Concessions: Calyon will likely be receptive to a small concessionbecause its portfolio is comprised oreDOs backed by lower quality collateral, but would resist deep concessions because orib overcollateralized position (and because in some cases collateral posting already approaches par) Access to the Assets: Based on anecdotal information, we believe Calyon owns the reference COOs Other Factors: • For one transacin the Calyon portfIDavis Square V), the bond's downhas resultin AIG's posting of par (bond pric=25 and independenamount upon downgrad= 25, reducinthe value to 0) • AIG has dispuCal:lon's collatrequesfor other transactin the portfolio (those with marks from Goldman Sachs, since AIG does not give fultoGoldman's marks for collapooting purposesIn turn, Calyon will not send the Davis Square V cashtoAIGdespitethe fact that AIGhas posted par _____________________________________________________________,.__B_L _A__C___R__L _1_<____ SOLUTIONS" 23 CONFIDENTIAL FRBNY-TOWNS-Rl-192360 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Calyon Portfolio Overview Calyon is the fifth largest counter party 0$4.3 billion, representing 7'f-o. f totaL counterpartyexposure $0. J billion in additional colhas been requestedsince 10114 • Calyon is expected to request more collateral due to independent amounts as bonds have been downgraded • BlackRock's projected values are significantly higher than Calyon's collateral requests, i.e., BlackRock expects the portfolio to perform better than values implied by collateral requests Calyon':>portfolio is forecast to experhigher tranchprincipal losses in all scenaands, exhibits disproportionaworse performance in extremestress scenarios The portfolio is heavily overwesub prime and slightly overweight Alt-A ° SOY,issubprime (compared to 3o\toverall) o1n is Alt-A, slightly higher than the total portfolio (1n) ° S3Y,of the portfolio is coin the 2005 vintageioverall) Only 11% of the portfolio is rated AAA(compared to 36%), and 16% is below Investment Grade (compared to 18% total) _____________________________________________________________,.__B_L ___C___R__ _1_<____ SOLUTIONS" 24 CONFIDENTIAL FRBNY-TOWNS-Rl-192361 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Calyon Portfolio Ys. All Portfolios ________________________________________________________C___ _1_<____ SOLUTIONS" 25 CONFIDENTIAL FRBNY-TOWNS-Rl-192362 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Calyon Portfolio Ys. All Portfolios ________________________________________________________C___ _1_<____ SOLUTIONS" 26 CONFIDENTIAL FRBNY-TOWNS-Rl-192363 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES UBS _________________________________________________________R _1_<____ SOLUTIONS" 27 CONFIDENTIAL FRBNY-TOWNS-Rl-192364 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES UBSNegotiations Negotiating Position: UBShas expresstrong interest in providing seller repo-fito facilitate AIG's purchase of the CDOsin the UBSportfolio • ALthough taLks are now on hold, the preLiminarJ term sheet contempLated that the difference between par and the collateral posted would be submittUBSin the form of highly rated CLOcollateral, held by UBSwith a 10% haircut for AM-rated positions, and a 3S\t haircut for positions rated AA,A and BBB • Muchof the focus for the repo transaction centers on Triaxx, a CDOthat is nearly half of the UBSportfolio ($1.9bn out of $4.2bn), bacby 92~SAARMBScollate(53hprimefagency), and is not projected to experience losses in the BlackRock stre:;z ca:;e, and little loz:; in the extreme ztre:;z caze (value of95 in the extreme ztre:;z ca:;e when cazh flow:; are discounted at the bond coupon) Concessions: Because a significant portion of the UBSportfolio (Triaxx) is very high quality with little expectationof losses, UBSis likely to resist any deep concession Access to the AssetsBased on negotiatiowith UBS,we believe that UBShas repo'ed parts of the portfolio (Triaxx and Ischus), but has access to the rCOOsence _____________________________________________________________,.__B_L _A__C__R__ _1_<____ SOLUTIONS" 28 CONFIDENTIAL FRBNY-TOWNS-Rl-192365 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES UBSPortfolio Overview UBSis the sixth largest counterparty 0$4.2 billion, representing!'>;; of totaL counterpartyexposure $0.6 billion in additional collhas been requestedsince 10114 • BlackRod. expects the portfolio to perform slightly wor.;e than ..,alues itodate by wllateral requested UBS'sportfolio Is projected to perform In line with the overall portfolio in each scenario The portfolio is heavily overweiprime/agencyand AIt-A RMBS,with a concentratioin 2005 and 2006 vintages ·307ineach Alt-Aand prime/ag(compared to 17%each for the overall portfolio'] • The portfolio is overweightVS.23%overall) and underweight 2VS.18%overall) While 45% of the portfolio is rated AM (compared to 36%), 21% is below Investment Grade (compared to 18% total) • AAA assets are found in the Triaxx COO, COOsin the portfoLio are of silower quaLity _____________________________________________________________,.__B_L ___C___R__ _1_<____ SOLUTIONS" 29 CONFIDENTIAL FRBNY-TOWNS-Rl-192366 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES ___________________________________________________SOLUTIONS"_1_<____ 30 CONFIDENTIAL FRBNY-TOWNS-Rl-192367 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES __________________________________________________SOLUTIONS"_1_<____ 31 CONFIDENTIAL FRBNY-TOWNS-Rl-192368 CONFIDENTIAL PRELIMINARYDRAFT- FORDISCUSSIONPURPOSES Appendices