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Bush's Destruction Of The Republican Party's Future, Illustrated
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06:00 am
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Stolen From The Daily Kos:
Permanent Republican majority indeed! Way to go with the thousand year Reich, blockheads. |
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Bank of America May Walk Away From Countrywide Deal
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08:35 am
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(Reuters) - Bank of America Corp (BAC.N: Quote, Profile, Research) is likely to renegotiate its deal to buy Countrywide Financial Corp (CFC.N: Quote, Profile, Research) down to the $0 to $2 level or completely walk away from it, said Friedman, Billings, Ramsey, which downgraded Countrywide to "underperform" from "market perform."
Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings due to the elevated credit expenses at Countrywide, analyst Paul Miller wrote in a note to clients.
He cut his target on Countrywide's stock to $2 from $7.
Bank of America, which said in January it would buy Countrywide for $4 billion, said in a filing last week there was no assurance that any of the mortgage lender's outstanding debt would be redeemed, assumed or guaranteed.
"Bank of America announced that it might not guarantee Countrywide's debt, which is most likely the first step in renegotiating the entire deal," Miller said.
If mark-downs on Countrywide's loan portfolio are less than $22 billion, then Bank of America can likely offset the adjustments with fair value debt adjustments and the difference between tangible equity and its purchase price of Countrywide, he estimated.
"We estimate that if fair-value adjustments to the loan portfolio could exceed approximately $22 billion, this would increase the odds of Bank of America renegotiating the transaction or walking away," Miller said.
The analyst said Bank of America's announced purchase price allows for some adjustments to loan values as it is below Countrywide's first-quarter GAAP tangible equity of $11 billion.
Miller, however, added that given the rapid credit deterioration and weak secondary market demand, markdowns on Countrywide's loans could easily exceed Bank of America's estimates when the company performed due diligence and the cushion was built into the deal.
He expects markdowns on Countrywide's $95 billion loan portfolio -- which includes $28 billion of option adjustable rate mortgages (ARMs), $14 billion of home equity line of credits (HELOCs), $20 billion of fixed rate second lien mortgages, and $19 billion of Hybrid ARMs -- to be material.
"We believe Countrywide has significant credit risk on its balance sheet, not only in its loan portfolio, but in its subprime and HELOC securities and residuals, its representations and warranties on loans sold, and in loans held outside of banking operations," Miller said.
On Friday, Standard & Poor's cut the credit rating of Countrywide to junk status on concerns that Bank of America may not support as much as $24 billion of the mortgage lender's debt once it completes its proposed takeover.
Countrywide, in a February regulatory filing, had said a loss of its investment grade rating would result in the acceleration of some secured debt obligations and hurt its ability to manage and hedge its inventory of loans.
In addition to increasing Countrywide's financing costs and potentially hurting its ability to attract and retain bank deposits, up to $4.2 billion of its custodial deposits could be transferred to another bank if it were cut below investment grade, the company had said.
Countrywide shares were trading down more than 8 percent at $5.49 before the bell, after closing at $5.98 Friday on the New York Stock Exchange. Bank of America shares closed at $39.79 Friday.
Countrywide has $81 billion of subprime and similar assets, and $14 billion of what I would infer are prime first-lien assets. A 40% default rate on the subprime-alike portfolio would leave them with $48.6bn in subprime assets and a $32bn loss. I would say a 40% loss on those assets after whatever kind of interest rate hedge or other voodoo economic processs they used to "enhance" their cashflow is generous, especially given what their financing costs must have been over the last little while, and what they must have done to keep the lights on. |
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Pilgrim's Pride Prepares To Pass Along Skyrocketing Feed Costs To American Consumers
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02:23 pm
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Pilgrim's Pride Loss Widens on Soaring Feed Costs (Update2)
By Choy Leng Yeong
May 5 (Bloomberg) -- Pilgrim's Pride Corp., the biggest U.S. poultry processor, said its second-quarter net loss widened to $111.4 million as record corn and soybean prices boosted the cost of feeding chickens.
The loss of $1.67 a share in the three months ended March 29 compares with a loss of $40.1 million, or 60 cents, a year earlier, Pittsburg, Texas-based Pilgrim's Pride said today in a statement. Sales rose 5.7 percent to $2.1 billion.
Chief Executive Officer J. Clinton Rivers is reducing weekly chicken-processing capacity 5 percent to stem losses amid record costs for feed ingredients such as corn and soybean meal. High grain costs will continue to ``exert pressure'' on the company's operating results in the second half of the budget year, Rivers said in the statement.
``Essentially the entire world is now paying the price of misguided public policy on biofuels and rising international demand for grain,'' Credit Suisse analysts led by Robert Moskow said in an April 21 note. ``Earnings will hit a bottom in the March quarter and accelerate from there as pricing picks up.''
Moskow has an ``outperform'' rating on the stock and had forecast a loss of 90 cents a share, excluding one-time items.
Excluding one-time asset impairment and restructuring charges related to the closing of a processing plant and six distribution centers, the loss was $1.50 a share, the company said. The average estimate of eight analysts surveyed by Bloomberg was for a loss of 75 cents a share.
Share Prices
Pilgrim's Pride fell 5 cents to $24.05 at 11:17 a.m. today in New York Stock Exchange composite trading. The shares tumbled 35 percent in the 12 months ended May 2.
The company said its total feed-ingredient costs for fiscal 2008 would increase from last year by more than $800 million, wider than its January forecast of more than $700 million.
``The operating environment for chicken producers today is among the most difficult I have seen during my 27 years in the business,'' Rivers said. ``The federal government has helped spark a growing worldwide food crisis by mandating corn-based ethanol production at the expense of affordable food.''
Pilgrim's Pride, whose customers include Wal-Mart Stores Inc. and Yum! Brands Inc.'s KFC restaurant chains, said its costs for corn and soybean meal rose $200 million in the quarter from a year earlier.
Ethanol Effects
Corn prices in the quarter averaged 28 percent higher from a year earlier as U.S. mandates for ethanol led to record demand for the crop-based fuel.
Soybean prices averaged 82 percent higher and reached a record $15.8625 a bushel on March 3 in Chicago after U.S. farmers reduced plantings last year to the lowest in more than a decade.
``American consumers are only just beginning to feel the impact of sharply higher food prices,'' Rivers said. ``There will be much more to come as food producers fully pass along these higher input costs.''
Springdale, Arkansas-based Tyson Foods Inc. said last week its 2008 grain costs will increase $600 million, more than its earlier forecast of $500 million. Corn reached a record $6.2425 a bushel on May 2 on the Chicago Board of Trade.
Rivers, 49, closed the processing plant in North Carolina plant and six distribution sites, cutting 1,100 jobs and 2 percent of production volume, within his first week as CEO in March.
`Return to Profitability'
``We continue to evaluate our production facilities for potential mix changes, closure, sale and or consolidation in an effort to position the company for a return to profitability,'' Rivers said.
Pilgrim's Pride uses about 324 million bushels of corn and 3.2 million tons of soybean meal a year, Rivers said in March. Feed accounts for about 35 percent of the cost of goods sold, he said.
During the quarter, Rivers also sold the company's New Oxford, Pennsylvania, turkey-processing plant to Hain Celestial Group Inc., exiting the turkey business.
Pilgrim's Pride surpassed Tyson as the world's biggest poultry processor when it bought Atlanta-based Gold Kist Inc., then the third-biggest U.S. chicken-meat producer, for about $1.12 billion in January 2007.
Rivers succeeded O.B. Goolsby Jr., who died in December after suffering a stroke. |
ResCap May Not Be Able to Meet June Debt Obligations (Update2)
By Caroline Salas and Ari Levy
May 5 (Bloomberg) -- Residential Capital LLC, the mortgage- finance company owned by GMAC LLC, said it may not be able to meet debt obligations unless it comes up with an additional $600 million by the end of June.
ResCap, the eighth-largest U.S. residential lender in 2007, today began offering as little as 80 cents on the dollar to exchange or buy back $14 billion of bonds to extend maturities and stave off bankruptcy. To finance the debt restructuring, ResCap is seeking a new $3.5 billion credit line from its parent GMAC, which is owned by General Motors Corp. and an investor group led by Cerberus Capital Management LP.
``There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008,'' Minneapolis-based ResCap said in a filing to the Securities and Exchange Commission today.
Record U.S. home foreclosures have led to six straight quarterly losses totaling $5.3 billion, eroding ResCap's cash position and pushing it closer to violating loan agreements. ResCap said it's trying to amend the terms of those credit lines.
ResCap also wants GMAC to contribute $350 million of ResCap notes outstanding to the mortgage lender by the end of the month and give it $150 million more in borrowings under an existing credit facility.
Asset Sales
Even if all those actions are successful, ResCap said today it will need ``to consummate in the near term certain asset sales or other capital generating actions over and above our normal mortgage finance activities to provide additional cash of $600 million by June 30.''
The company is already pursuing asset sales to help meet near-term obligations, GMAC spokeswoman Toni Simonetti said today in a phone interview.
``They've got a ton of debt coming due and they have to deal with it whether they like it or not,'' said Mirko Mikelic, portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. ``GM has already stepped up but they're not going to want to continue to do that if ultimately ResCap is going to have to file'' for bankruptcy, he said. Fifth Third has $22 billion in assets under management and doesn't own GMAC or ResCap bonds.
ResCap's $1.75 billion of 6.5 percent notes due in 2013 fell 2.5 cents to 52 cents on the dollar at 3:05 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes yield 26 percent, or 23 percentage points more than similar-maturity Treasuries, Trace data show.
Bond Exchange
GMAC has already injected more than $2 billion of capital into ResCap. GM, the world's largest automaker, sold a 51 percent stake to the investor group led by Cerberus in 2006 as part of a plan to protect GMAC from the automaker's declining credit outlook.
Fitch Ratings, Standard & Poor's and Moody's Investors Service cut their ratings on ResCap's debt following the bond exchange announced last week. |
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