1 min readExecutive Summary ABCP can be a good investment choice in large corporate treasury accounts due to the depth, liquidity, flexibility, and yield potential of the asset class. ABCP gained popularity recently because increased event risk of corporate names resulted in concern about unsecured commercial paper. A potential investor of ABCP should carefully review the strength…
2 min readResearch Highlights The ratio of roughly 3 to 1 single-A vs. double-A issuers suggests a liquid market sector and potential for better risk diversification. One-year default probability but a single-A corporate issuer was 0.02% in the last 10 years. Investing in single-A securities would have increased cumulative credit losses by 0.20% over a five-year span…
3 min readOn the day Merck announced the withdrawal of its arthritis drug Vioxx, its stock price closed down 27% from the previous day. By the time Moody’s downgraded Merck’s debt to Aa2 40 days later, the formerly AAA-rated company had lost 42%, or $58 billion of its equity value. Is it time for investors of short-duration…
2 min readExecutive Summary Empirical data support the view that AAA-rated asset-backed securities provide comparable investment returns while incurring less credit risk and return volatility than AAA-rated corporate securities. The annual return advantage of ABS was 5 basis points (bps) over corporate securities in the last six years. The return pickup shot up to 41 bps annualized…
2 min readIntroduction Corporate treasurers frequently make investment decisions based on debt ratings from nationally recognized statistical rating agencies, namely Moody’s, Standard & Poor’s, and Fitch. This article addresses the credit risks of Auction Rate Securities (ARS) that are not adequately addressed by long-term credit ratings alone in short-term investment selections. Long-Term Ratings Do Not address Short-Term…
1 min readWhat is a Make-Whole Call? A make-whole call is a type of call provision in a bond allowing the borrower to pay off remaining debt early. The borrower has to make a lump sum payment to the holder derived from an earlier agreed upon formula based on the net present value (NPV) of future coupon…
3 min readThe latest debacle at Fannie Mae is perhaps the deadliest in its existence as a Government Sponsored Enterprise (GSE). The latest discoveries by the Office of Federal Housing Enterprises Office (OFHEO) could ignite a firestorm that may result in dramatic makeovers at the very heart of the organization. As a corporate treasurer, should you sell…
1 min readWhat are Treasury Inflation-Protected Securities? Treasury Inflation Protected Securities (TIPS), are inflation-indexed government bonds whose principal amount is adjusted periodically for inflation. A fixed interest rate is paid semi-annually on the adjusted amount. They may also be referred as Treasury Inflation-indexed Securities (TIIS). Overview of the TIPS Market Established in 1997 by the US Treasury,…
3 min readLast April, when Google Inc. unveiled its plan to use a Dutch style auction in its initial public offering, it brought the popularity of this peculiar way of setting securities prices to a new height. Meanwhile, a sea change has been taking place for several years that promises to redefine how debt issuers tap the…
2 min readMoody’s Review for Downgrade and Fitch Rating Watch Negative: AMS-3, 2003, LP, Class A-1 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class A-2 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class A-3 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class A-4 auction rate note (Aaa/AAA) AMS-3, 2003, LP, Class B auction rate note (A3/A) Opinion…