Financial Defeasance Structures

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This morning’s WSJ notes that Portugal’s 2010 fiscal deficit will likely be revised upwards due to a shift in Eurostat’s rules concerning the accounting treatment of problematic assets. The March 16 Eurostat guidance note is here.

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7 Responses to “Financial Defeasance Structures”

  1. David O'Donnell Says:

    @PL

    Portugal’s most ‘problematic asset’ is its inbred, controlling, upper_echelon elite, which regulatory captures all – and is actually an impediment to Portugal’s real social & economic development. One dictatorship simply replaced another …

    In a spirit of European Solidarity I’m willing to send Ajai out ‘on loan’ to Lisbon every second week … imho IMF would be very good for Portugal – but starting at the top, as distinct from the bottom.

  2. Dreaded_Estate Says:

    Does that mean NAMA, and by reading it could also mean that Anglo’s will have to be brought officially onto the state’s balance sheet. It seems to meet all of these conditions

    In most cases, this analysis is reinforced by some or all of the following features of the entity such as:
    - being closed to new business (or partly open under restrictive conditions mainly in
    the context of management of existing assets),

    - a clear prohibition to compete on banking and financial markets,

    - a foreseen limited lifetime linked to the progressive liquidation of the assets by
    (partial) recovery or sales on the market,

    - a restrictive access to market resources under normal conditions.

  3. David O'Donnell Says:

    @D_E

    Sov Bond Market factors them in anyway … be idiotic if they didn’t …

    Bond?

  4. Bond. Eoin Bond Says:

    @ DoD

    kinda. Still gives you some benefit to have a debt/GDP ratio of 90% rather than 120%, even if everyone knows that 120% is more “real” (although, that said, the market also realises that there is at least some non-zero asset value in the likes Anglo and NAMA which gets lost in the 120% figure as well). So thats where the uncertainty comes in, as something like a NAMA or Anglo does not have an open market valuation, and typcially provide less transperent information, than a quoted/listed entity. If we recall, S&P assigned a zero valuation to NAMA assets, on the basis that none of them would be realised within the 3 year window that they were analysing. Maybe NAMA makes a loss, buts it ridiculous to say that 70bn of nominal loans, with a not-ridiculous market value of 30bn, are somehow worthless.

  5. David O'Donnell Says:

    @Bond. Eoin Bond

    Ta for that. Agree on NAMA valuations – and optics on debt/gdp ratio…

    How’s BoI this fine morning?

    Did you get the invite to Spectaless’s goin-away party tmro? (-;

  6. hoganmahew Says:

    Not only was it obvious at the time of nationalisation that Anglo’s debts would be added to the national debt, but that the promissory notes, NAMA bonds, other nationalised banks, and likely the NPRF borrowings (the deficit on the capital account for the years that money was put into the NPRF – borrowed money) will be added to the national debt too.

    It was as plain as day two years ago that this was not an ordinary dip in the economic cycle, that the assets that underpin these debts were not going to magically recover. Why it should be surprising to anyone now is in itself surprising.

    But then, we had this sort of stuff coming out of Davys:
    http://www.thepropertypin.com/viewtopic.php?f=19&t=17670

  7. Dreaded_Estate Says:

    @Eoin
    “If we recall, S&P assigned a zero valuation to NAMA assets, on the basis that none of them would be realised within the 3 year window that they were analysing. Maybe NAMA makes a loss, buts it ridiculous to say that 70bn of nominal loans, with a not-ridiculous market value of 30bn, are somehow worthless.”

    I don’t think it is correct to say that S&P placed a value of 0 on the NAMA assets. They just said that they weren’t going to allow the government to offset the value of the assets against the debt.

    Which actually makes a lot of sense when you consider the treatment of other government debt and assets.
    When the government borrows to build a road, they have incurrred new debt but also have an asset on the blance sheet. There is no convention that this asset could be offset against the debt incurred even though theoritically the government could say that it intends to sell the road in the future.

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