Legg Maintains 'The Buck'

Bloomberg-

Legg Mason Inc. pumped $1.12 billion into two non-U.S. cash funds to prevent losses, the biggest bailout by a money manager tied to asset-backed debt sold by structured investment vehicles.

The move, along with an earlier cash infusion, will reduce earnings per share by 15 cents in the quarter ending Dec. 31, the Baltimore-based company said today in a statement. Legg Mason has provided $1.47 billion to support money funds and other cash- management portfolios since November.

``This action is consistent with our ongoing efforts to reduce the ABCP exposure in our liquidity funds in light of current stresses in the credit markets,'' Raymond ``Chip'' Mason, Legg Mason's chief executive officer, said today in a statement, referring to asset-backed commercial paper.

To raise the capital, Legg Mason entered a total-return swap with Barclays Plc, which purchased SIV securities from Legg Mason.

SIVs now account for 3.2 percent of Legg Mason's $164 billion in cash funds, compared with 6.4 percent on Oct. 31. Some 1.1 percent of Legg Mason's cash-fund assets are invested in bank-sponsored SIVs, which have announced their support of those securities, Legg Mason said.

PRnewswire-

In a Dublin-domiciled fund, Legg Mason reduced the fund's SIV holdings through (1) a transaction whereby the fund received cash of $890 million for certain SIV securities that were transferred to a major banking institution (the "Bank") in connection with a total return swap between the Bank and the Company, and (2) Legg Mason purchasing for cash an aggregate of $132 million in principal amount of SIV securities from the fund. All of the securities in question have scheduled maturities ranging from January to November 2008. Under the total return swap, Legg Mason is responsible for any loss incurred by the Bank below its purchase price through November 2008 plus a return to the Bank (net of any interest received on the securities) and would benefit from any gain realized by the Bank above its purchase price. Legg Mason has provided $83 million to collateralize the swap, which may be increased or decreased based on changes in the market value of the underlying instruments or upon any maturity of, or default under, any of the underlying instruments.

Raymond A. "Chip" Mason, the company's chairman, president and chief executive officer, commented, "This action is consistent with our ongoing efforts to reduce the ABCP exposure in our liquidity funds in light of current stresses in the credit markets. The actions we are announcing today have meaningfully reduced one fund's ABCP holdings and essentially eliminated the other fund's holdings. These actions are further evidence of our continuing support of our liquidity products in light of current unprecedented market conditions. We will continue to monitor our liquidity funds carefully and may elect to take additional action in the future if we deem it appropriate."

Canadian M-LEC Hybrid Reached

Canadians reach a restructuring of C$33 Billion in ABCP debt;

Bloomberg-

Investors holding about C$33 billion ($33.3 billion) of short-term debt in Canada agreed to swap it for longer-term notes, ending a four-month freeze in trading of the securities.

Today's agreement, which covers 20 of the 22 non-bank trusts, has been approved ``in principle'' by the investor group as well as the trust sponsors. Some lenders, including ``several of the large Canadian banks,'' have said they may provide credit facilities, according to the statement.

The group didn't say how much investors will receive on the dollar, according to spokesman Mark Boutet.

The commercial paper will be restructured differently depending on the type of asset that backs it, the statement said.

The Caisse, Canada's biggest pension-fund manager, is the largest holder of non-bank issued commercial paper, with about C$13.2 billion. Other large holders include National Bank of Canada, the country's sixth-biggest bank, ATB Financial, an Alberta bank, and Transat A.T. Inc., a charter carrier.

The Caisse said in a separate statement today it's ``very satisfied'' with the agreement.

Well, it seems a little to late for Canada's largest sponsor of asset backed commercial paper, Coventree Capital Group. They reported the infamous statement: "Advisors are now exploring several restructuring options, which could involve, among other things, a sale, merger or other transaction involving the company or parts of the company, or potentially the orderly windup of the company's operations."

Coventree shares, close to zero, may warrant a few looks from the vultures.

Buyer's Strike

Msnbc-

The size of the US asset-backed commercial paper market has shrunk for an 18th consecutive week, reducing this important source of funding for financial institutions to its lowest level in two years.

For the week ending on Wednesday, the amount of outstanding ABCP declined $10.3bn to $791bn.

The week before, ABCP declined $23bn and since the market peaked at $1,200bn in early August, it has shrunk by more than one-third.

Around 75 per cent of ABCP is being funded on an overnight basis and analysts say money funds and banks are seeking to avoid holding such exposure over the year-end.

Since late November, the volume of outstanding financial commercial paper has increased from $827.6bn, while the total amount of ABCP has shrunk below $800bn. Not since 2001 has financial CP been greater than ABCP.

According to analysts, this shows that banks are funding more assets directly, rather than through SIVs and other off-balance sheet entities. The shrinking commercial paper market is one factor behind the current elevated money rates in the interbank lending market. In spite of a co-ordinated plan to inject more liquidity into the markets by central banks this week, dollar, sterling and euro denominated Libor remains well above the overnight borrowing level set by central banks.

To the Balance Sheet

Citigroup brings its seven SIVs to its balance sheet. No more waiting around for a downgrade.

BusinessWire-Citi announced today that it has committed to provide a support facility that will resolve uncertainties regarding senior debt repayment currently facing the Citi-advised Structured Investment Vehicles (“SIVs”).

This action is a response to the recently announced ratings review for possible downgrade by Moody’s and S&P of the outstanding senior debt of the SIVs, and the continued reduction of liquidity in the SIV related asset-backed commercial paper and medium-term note markets. These markets are the traditional funding sources for the SIVs. Citi’s actions today are designed to support the current ratings of the SIVs’ senior debt and to allow the SIVs to continue to pursue their current orderly asset reduction plan. As a result of this commitment, Citi will consolidate the SIVs’ assets and liabilities onto its balance sheet under applicable accounting rules.

Several key factors further contributed to Citi’s decision to make this commitment:

• The SIVs continue to successfully pursue alternative funding strategies, primarily asset reductions, to meet maturing debt obligations. The SIV assets (net of cash and cash equivalents) have been reduced from $87 billion in August 2007 to $49 billion currently, while maintaining the overall high credit quality of the portfolio. Citi expects orderly asset reductions will be sufficient to meet liquidity requirements through the end of 2008, which currently total $35 billion. Consequently, Citi expects little or no funding requirement from the facility.
• As assets continue to be sold, Citi’s risk exposure, and the capital ratio impact from consolidation, will be reduced accordingly.
• Given the high credit quality of the SIV assets, Citi’s credit exposure under its commitment is substantially limited. Approximately 54% of the SIV assets are rated triple-A and 43% double-A by Moody’s, with no direct exposure to sub-prime assets and immaterial indirect sub-prime exposure of $51 million. In addition, the junior notes, which have a current market value of $2.5 billion, are in the first loss position.
• Taking into account this commitment, Citi still expects to return to its targeted capital ratios by the end of the second quarter of 2008. Based on September 30, 2007 capital ratio disclosures and applying the current asset levels in the SIVs, the estimated impact of this action would have been approximately 16 basis point decline in the Tier 1 capital ratio and approximately 12 basis point decline in the TCE/RWMA ratio.

“Our team has made great progress managing the SIVs in a very difficult environment. After considering a full range of funding options, this commitment is the best outcome for Citi and the SIVs,” said Vikram Pandit, Citi’s Chief Executive Officer.

The terms of this committed facility will be finalized in early 2008 and will reflect market terms.

The commitment is independent of the “Master Liquidity Enhancement Conduit” (“M-LEC”). Citi continues to support the formation of the M-LEC, which is an initiative that involves Citi and other financial institutions.

Attached are additional fact sheets regarding the SIVs and the committed support facility.

ADDITIONAL FACTS ON THE CITI-ADVISED SIVs

Profile of the SIV assets and liabilities as of December 12, 2007:

				Average Credit Quality (1,2)
		Average Asset Mix		Aaa		Aa		A
Financial Institutions Debt		60%		14%		43%		3%
Sovereign Debt		1%		1%
Structured Finance:
MBS – Non-U.S. residential		12%		12%
CBOs, CLOs, CDOs		6		6
MBS – U.S. residential		7		7
CMBS		3		3
Student loans		5		5
Credit cards		5		5
Other		1		1
Total Structured Finance		39%		39%
Total Assets		100%		54%		43%		3%
The weighted average maturity of the assets is 3.7 years

(1) Based on Moody’s ratings.

(2) The SIVs have no direct exposure to U.S. sub-prime assets and have approximately $51 million of indirect exposure to sub-prime assets through CDOs which are AAA rated and carry credit enhancements.

		Amount Outstanding		Average Rating		Average Maturity
Commercial Paper		$10B		A-1+/P-1		2.4 months
Medium Term Notes		48B		AAA/Aaa		10.1 months

OTHER INFORMATION

• Through asset reductions, the SIVs have partially repaid the previously disclosed $10 billion commitment to purchase commercial paper. As a result, Citi now holds $7.2 billion of commercial paper issued by the SIVs as of December 12, 2007. Citi expects the SIVs to fully repay the commercial paper at or before the last maturity date in mid-March 2008. Following the final maturity date, the new facility is expected to be the sole commitment by Citi to the SIVs.
• The Citi-advised SIVs are: Beta, Centauri, Dorada, Five, Sedna, Vetra and Zela.

ADDITIONAL FACTS ON THE COMMITTED SUPPORT FACILITY

FINANCIAL AND ACCOUNTING IMPACT

-- From an accounting perspective:

-- Upon consolidation and on an ongoing basis, the SIV assets and liabilities will be accounted for at fair value.

-- Any losses resulting from changes in the market values of the assets and liabilities are first borne by the junior note holders up to the value of their investments, which had a market value of $2.5 billion on December 12, 2007.

-- The total value of the assets and liabilities on December 12, 2007, were each $62 billion, which includes cash and cash equivalents of $13 billion in the assets and the $2.5 billion of junior notes in the liabilities.

-- From an economic perspective:

-- The size and terms of the facility will be determined in early 2008 and will reflect market terms.

-- The size of the facility will vary through the life of the facility and will depend on a number of factors, including the SIVs' repayment of maturing debt obligations.

Please Wait Two Weeks

Moody's says it will not create an a sector wide Siv review, but announce reviews seperately, extending their communication timeline two more weeks.

Man, I was waiting for it to come out this week.

London, 05 December 2007 -- Moody's Investors Service announced today that it has extended its review period for Structured Investment Vehicles (SIVs) due to the receipt of new, material information about possible changes to these issuers' operations. In some cases, SIV managers are contemplating changes to their management strategies with the objective of reducing market value risk for senior debt investors, while in other cases SIV managers are in the process of implementing restructuring proposals that would provide more protection to senior debt holders. Given the complexity and evolving nature of these wide-ranging remedial measures, Moody's requires additional time to thoroughly evaluate the rating impact of each SIV's unique action plan. In addition, Moody's will announce the conclusion of its individual SIV reviews as they occur, rather than upon the completion of a sector-wide review, in order to avoid unnecessary delay in communicating its rating actions to the public. We expect to conclude our review of most of the affected SIVs within two weeks.

The Old Vertical Slice Trick

WhistleJacket reduces holdings by 40% since August in asset sales to capital note holders.

That is a reduction of $7.2 Billion in assets.

Dec. 5 (Bloomberg) -- Whistlejacket Capital Ltd., the structured investment vehicle managed by Standard Chartered Ltd., has sold assets to reduce the fund by 40 percent to $10.8 billion since August.

Whistlejacket sold some of the holdings to bondholders in return for redeeming their notes in so-called vertical slice deals, the London-based bank said in a statement today. Standard Chartered took a $46 million ``temporary writedown'' on $1.68 billion of assets it bought from the SIV.

``It is highly likely that the group will undertake a further vertical slice which will be effected before the end of the year, alongside similar transactions by a number of other capital note holders,'' the bank said in the statement.

Whistlejacket is funded ``into 2008'' Standard Chartered said, without providing further details.

Citigroup Needs Money

NEW YORK (AP) --Yahoo

Citigroup Inc. has agreed to sell two downtown Manhattan office buildings
to SL Green Realty Corp. for about $1.58 billion, the companies said.

Citigroup will lease back the adjacent buildings, which are home to
Citigroup's investment bank, under a 13-year lease that calls for annual rental
increases. The properties, located on Greenwich Street in Manhattan's Tribeca
neighborhood, have about 2.6 million square feet of office space, SL Green said
Monday.

The agreement, which is awaiting approval from Citigroup's board of
directors, is the latest in a string of at least a half-dozen building sales by
the New York bank.

Citigroup has been struggling to rebuild its depleted capital base amid
mounting mortgage-related losses and some costly acquisitions.

Sounds good?

Fitch Downgrades Citi's Sedna Siv

Fitch Ratings-

London-04 December 2007: Fitch Ratings has today downgraded
the second priority senior notes issued from the MTN programmes of Sedna Finance
to 'CCC' on Rating Watch Negative (RWN) from 'A' on RWN.
The action affects
USD867m of second priority senior (SPS) notes initially rated 'A' and issued by
Sedna Finance Corporation and Sedna Finance Inc. (Sedna Finance).

The rating action reflects Fitch's view that the
probability that the SPS notes will incur a loss has significantly increased
over the recent weeks with the reduction in the average asset price falling to
below 97%. Sedna finance's NAV of its SPS notes and subordinated notes is now
54%. Although the manager has reduced the leverage in Sedna to 9 times from 13.5
in July 2007 the realised losses have nearly eroded all protection
provided by the unrated capital tranche. If the manager sold $US0.5Bn
of assets at the current market average price then the SPS notes would incur a
realised loss. While Fitch recognises that Sedna is funded to the end of January
2008 there will be significant refinancing requirements that may need to be
covered by the sale of assets.

Citigroup has Five Days or SIV Downgrade

Will Citigroup announce an intention to support the financing for its $ 64.9 billion in vehicles? If not, the Commercial paper and Medium term notes risk a downgrade. Moody's said last Friday:

In this latest review, Moody's employed its updated methodology as announced on September 5th. The methodology update reflects the unprecedented volatility in the market value of the securities held by SIVs. For each SIV, Moody's models expected loss using a stressed volatility for the distribution of market asset prices based primarily on declines observed since July 2007. With this stress, only those tranches of the ABCP and MTNs issued that can sustain an additional price decline of two times the decline observed in this period will retain Aaa/Prime-1 ratings.

The net assets for Citigroup's vehicles in percentage terms:

Beta: 62%
Centauri: 60%
Dorada: 52%
Five: 63%
Sedna 56%
Zela: 61%
Vetra: ? (not found or mentioned in Moody's report)

None of these Vehicles pass the Moody's test for AAA rating.

To pass for the rating, the Vehicle has to have equity left after subtracting 2 times the previous losses since July. So therefore, any SIV with a NAV of less than 67% will be downgraded. This looks to be about half of the SIV universe.

Citigroup, and others have already provided emergency funding to their SIV after they were unable to pay maturing debt. Citigroup has already spotted $7.6 billion. With a downgrade, it would be much more.

There are some options. However, Citigroup has said:

Citigroup said in a Nov. 5 regulatory filing that it ``will not take actions that will require the company to consolidate the SIVs.'' The strategy ``remains unchanged from the disclosures in the third quarter'' filing, spokesman Jon Diat said yesterday in an e-mail statement. ``We continue to focus on liquidity and reducing leverage,'' Diat said. Citigroup's SIV assets have dropped to $66 billion from $83 billion on Sept. 30, Diat said.

I'm psyched to see what happens.