Gentlemen, I called up some of my buddies and informed them that we are going to pump this tommorrow. Hope you were in on this today.
You Lucky Bastards: FMD
- Thread starter ByLoSellHi
- Start date
Alright, I just spent an hour reading this whole thread.... You MOFOs have me convinced this has nowhere to go but UP! So I'm going to purchase a small amount of June 7.5 calls or Sept. 7.5 calls.....
How can you not like the risk/reward on this????
I picked up CFC calls 2 hours before the Bank of America buyout news came out and made out with 300%!!!
LET'S DO IT AGAIN!!!!!!!!
How can you not like the risk/reward on this????
I picked up CFC calls 2 hours before the Bank of America buyout news came out and made out with 300%!!!
LET'S DO IT AGAIN!!!!!!!!
OK I found it. This is the impact the auction rate market has on residuals. This is the value of the pre-existing book they've put together, and is very important as it dictates their revenue stream going forward (especially if they can't put together new deals).
Just FYI: Just imagine their business model. Expense is what they have to pay for money on the auction rate market. Income is LIBOR + spread (whatever is on their student loans). The more the auction rate interest is spread from LIBOR, the reduced value of their residuals.
Can someone help here and figure out what their past securitizations are either locked at [what they are stuck paying for $$$] considering the ARN mkt is dead to them ???
Here you go.
Good points here on the cash position possibly being weakened by opex/etc. Expect that into the earnings. Its this margin here which I think is most key (besides of course finding a new guarantor).
http://www.sec.gov/Archives/edgar/data/1262279/000104746908001106/a2182489z10-q.htm
Page 29.
During the second quarter of fiscal 2008, material deterioration of the debt capital markets resulted in actual auction rates that trended significantly higher than the rates we had assumed in the past. As a result, we revised the spread over LIBOR that we use to estimate the future cost of funding of auction rate notes. If higher actual auction rates persist longer then we currently estimate, our residual and structural advisory fee receivables could decrease more significantly than indicated in the sensitivity table above. The interest rate on each outstanding auction rate note is limited by a maximum auction rate. A widening in the assumed spread between LIBOR and the auction rates of 50 basis points, which would result in an interest rate equal to the maximum auction rate for some but not all outstanding auction rate notes, would result in a decrease in the estimated fair value of our residuals of $29.3 million, or 4.82%, and a decrease in the estimated fair value of our additional structural advisory fees of $0.06 million, or 0.04%. A widening in the assumed spread between LIBOR and auction rates to the maximum auction rate for each outstanding auction rate note would result in a decrease in the estimated fair value of our residuals of $59.5 million, or 9.77%, and decrease in the estimated fair value of our additional structural advisory fees of $0.11 million, or 0.07%. See "Risk Factors" under Part II of this quarterly report for additional information regarding our trusts' auction rate notes.
Just FYI: Just imagine their business model. Expense is what they have to pay for money on the auction rate market. Income is LIBOR + spread (whatever is on their student loans). The more the auction rate interest is spread from LIBOR, the reduced value of their residuals.
Can someone help here and figure out what their past securitizations are either locked at [what they are stuck paying for $$$] considering the ARN mkt is dead to them ???
Here you go.
Good points here on the cash position possibly being weakened by opex/etc. Expect that into the earnings. Its this margin here which I think is most key (besides of course finding a new guarantor).
http://www.sec.gov/Archives/edgar/data/1262279/000104746908001106/a2182489z10-q.htm
Page 29.
During the second quarter of fiscal 2008, material deterioration of the debt capital markets resulted in actual auction rates that trended significantly higher than the rates we had assumed in the past. As a result, we revised the spread over LIBOR that we use to estimate the future cost of funding of auction rate notes. If higher actual auction rates persist longer then we currently estimate, our residual and structural advisory fee receivables could decrease more significantly than indicated in the sensitivity table above. The interest rate on each outstanding auction rate note is limited by a maximum auction rate. A widening in the assumed spread between LIBOR and the auction rates of 50 basis points, which would result in an interest rate equal to the maximum auction rate for some but not all outstanding auction rate notes, would result in a decrease in the estimated fair value of our residuals of $29.3 million, or 4.82%, and a decrease in the estimated fair value of our additional structural advisory fees of $0.06 million, or 0.04%. A widening in the assumed spread between LIBOR and auction rates to the maximum auction rate for each outstanding auction rate note would result in a decrease in the estimated fair value of our residuals of $59.5 million, or 9.77%, and decrease in the estimated fair value of our additional structural advisory fees of $0.11 million, or 0.07%. See "Risk Factors" under Part II of this quarterly report for additional information regarding our trusts' auction rate notes.
Nice find again, scriab.
But unless I'm mistaken, that only indicates that any reduction in servicing fees on previously sold notes that FMD only services, or interest rates on currently held notes (of which, I'm not sure FMD has many, on a relative basis), may drift lower.
In other words, it would potentially decrease the amount of advisory and servicing fees on a forward basis, and possibly ding their accounts receivable of roughly 770 million.
So, it does not indicate any material threat to FMDs current cash reserve or liquidity, if I'm interpreting it correctly. That cash is already in the till, as will Goldman's end of June additional cash injection be.
But unless I'm mistaken, that only indicates that any reduction in servicing fees on previously sold notes that FMD only services, or interest rates on currently held notes (of which, I'm not sure FMD has many, on a relative basis), may drift lower.
In other words, it would potentially decrease the amount of advisory and servicing fees on a forward basis, and possibly ding their accounts receivable of roughly 770 million.
So, it does not indicate any material threat to FMDs current cash reserve or liquidity, if I'm interpreting it correctly. That cash is already in the till, as will Goldman's end of June additional cash injection be.
Dont worry fellas. I know you overleveraged into this thing. I can bring it up a little, but then you need to sell. 
Thats right. I'm just thinking that opex is going to be a pressure on cash right now. So any revenue stream they are entitled to is a worthwhile component of value of the company, more significant than the cash alone.
Their future revenue stream is entirely discounted to 0 already. Its kind of bizarre. That TERI insurance is make or break to the residuals obviously. That is why I've been so persistent to find out what the *real* cashflow story is .. ie, what are the outstanding securitizations paying versus what FMD is collecting?? What is the margin? If it is negative, who is taking that risk? Of course that comes out of residuals.
With the ARN model, it looks like FMD or some proxy party holds monthly renewable debt to float to match changing LIBOR rates (which is what FMD collects + their profit spread). The wider the margin between cost of money and total interest collected is clearly by that above text an impact to residual.
So 1) Can FMD have negative residual from being stuck paying old high interest debt? (Remember, the lower the fed and LIBOR rates go, the worse this gets for FMD as long as the auction rate market is not performing, since TERI is SOL).
2) Or are the dealers stuck with the potential losses?
Imagine this:
FMD refloats 80% (just for this example, i don't know the actual # off the top of my head) of its past securitizations monthly. Its stuck right now (or a representing bank is) paying 6% yield on all of its securitizations right now, to investors. It can't reset to current yields (lets say 3.5%?) because TERI won't back the short term payments to ARN holders.
At the same time, its collecting current 1M libor + 250bp from its students. That is 2.7 + 2.5 = 5.2%.
You see what I'm getting at here? Someone (FMD? or Banks running the securitization?) is paying 6% for money only to collect 5.2%. The mere existence of these loans is a losing proposition for somebody until that TERI guarantee returns.
This is why I asked all of the questions before. Because even if this stuff is on somebody else's balance sheet, it significantly affects FMD's bottom line. How do you get residuals out of nowhere? Anyone know these actual #s?
Take a look at SIGM... talk about discounting to 0.