Your daily dose of structured finance irony served right here, in the below statement from ratings agency Fitch:

CHICAGO–(BUSINESS WIRE)–Fitch Ratings has reviewed MBIA Capital Management Corp. (MBIA Capital) as a potential replacement collateralized debt obligation (CDO) asset manager for Vertical CRE CDO 2006-1 Ltd./LLC (Vertical) and determined the manager’s capabilities to be consistent with the current ratings assigned to the notes issued by Vertical.

On July 31, 2009, Fitch was notified of a proposed amendment to the Vertical Collateral Management Agreement in which the CDO asset management responsibilities for the transaction would be transferred to MBIA Capital from Vertical Capital, LLC. Fitch’s initial and on-going rating of CDO transactions includes a review of the CDO asset manager to determine whether they meet the appropriate standards. Fitch’s review procedure for potential replacement CDO asset managers is outlined in the special report entitled ‘CDO Asset Manager Replacement Activity Update’, dated April 24, 2009 and available on Fitch’s web site at www.fitchratings.com.

MBIA Capital is a subsidiary of MBIA Inc. MBIA, a holding company whose subsidiaries provide financial services, with three offices and approximately 100 employees globally. MBIA Capital was established in 1994 and had more than $40 billion in assets under management across balance sheet, third party and structured vehicles as of March 31, 2009. MBIA Capital currently manages 11 CDOs issued since February 1997, four of which it acts as replacement manager, totaling $6.2 billion. Fitch notes that Vertical would represent the first commercial real estate (CRE) CDO to be managed by MBIA Capital, although the firm does have prior experience assuming credit exposure to the sector. . .

It does indeed have “previous experience assuming credit exposure to the sector” — specifically its exposure to CMBS-backed CDOs, worth about $43bn back in the beginning of 2008. Those CDOs, combined with MBIA’s massive subprime exposure, helped kickstart the bond insurer’s rather spectacular decline over the past year and a half.

In fact, the real fallout from MBIA’s commercial real estate exposure may be just beginning, with JP Morgan analysts Andrew Wessel and Daniel Kim downgrading the company for CMBS-related reasons last week. “Ultimate CDO, RMBS and CMBS related losses will eventually overwhelm capital, as the company continues to operate in run-off,” the JPM analysts wrote, sending MBIA shares sliding.

A prime candidate to start managing CRE CDOs, then, if ever there was one.

Related links:
CMBStress - FT Alphaville
Moody’s and the monolines – FT Alphaville

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article

Comments

Comments have not been enabled for this article.