MainStream, LLC; Oreland, Pa.
With the stock market up by 18.9 percent through the end of November 2009 and “signs” of recovery on the horizon, financial institutions throughout the world continue their quarterly, if not monthly, chore of estimating loan loss reserves during the most challenging times in recent economic history. Estimating these reserves is analogous to determining the exact arrival time of a cross-country flight dealing with headwinds and thunderstorms. In the United States alone, the largest lenders undertake this chore in a climate of unprecedented government intervention, recessionary conditions and a daily barrage of possible new regulations.
Why are bank loan loss reserves important? These metrics assist stock analysts and the investing public in the process of estimating current and future bank performance for investment purposes. The degree to which a bank’s reserves against “bad loans” has a visceral impact on their willingness to extend capital in the future e.g., whether or not they will provide fuel in the form of debt capital to a struggling economy.
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AlixPartners LLP Financial Advisory Services Group; New York
AlixPartners LLP Financial Advisory Services Group; New York
Over the past year, much has been written about the coming “wave” of debt maturities; to add to the drama, some call it a tidal wave and others a tsunami. Regardless of the label that one uses, there is no dispute that several trillion dollars of debt will be coming due in the next few years. Much of that debt will be refinanced in the ordinary course because the borrowers have good businesses and adequate collateral. However, among those maturing debts are, according to a Moody’s February 2010 report, more than $800 billion of leveraged loans and high-yield bonds issued by “speculative-grade borrowers.” In an earlier era, the debt issued by such borrowers was known less artfully and more aptly as “junk.”
The term “junk” originated because of the high risk associated with holding such debt. During the heady LBO days of 2005-2007, easy credit and huge amounts of cash fueled irrational debt structures. Aggressive revenue growth and margin expansion were assumed in the financing of these transactions and were vital for repayment of interest (i.e., no room for error). Even if the borrower were to deliver on its plan, a refinancing at maturity was assumed. Nomenclature such as “leveraged loans” and “high-yield bonds” only serves to mask the true “junk” nature of many of these securities.
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There is still time to register for ABI's 28th Annual Spring Meeting, to be held April 29th-May 2nd at the Gaylord National Resort and Convention Center. This year's meeting offers a roster of the best national speakers, with a special focus on the tough policy choices facing the administration and Congress. Optional events range from a golf tournament to an Orioles vs. Red Sox baseball game and plenty of networking events are planned to keep you socializing with ABI friends and colleagues.
The Financial Advisors Committee will present a session on Saturday, May 1 at 8:00 a.m. entitled "Have You Heard the One about the Equity Dividend in a Chapter 11 that Was More than Chicken Feed?" Panelists will discuss the turnaround of Pilgrim's Pride and the corresponding major legal and transaction issues that arose. William K. Snyder of CRG Partners Group LLC in Dallas will moderate. Panelists will include Daniel Aronson of Lazard Ltd. in New York, Jason S. Brookner of Andrews Kurth LLP in Dallas, Jeremy B. Coffey of Brown Rudnick LLP in Boston and Stephen A. Youngman of Weil, Gotshal & Manges LLP in Dallas. Click the link below to view the materials.
Pilgrim's Pride Panel Discussion
