Description of first Slide goes here.Vestibulum ante ipsum primis in faucibus orci luctus et ultrices posuere cubilia Curae...
Description of second Slide goes here.Vestibulum ante ipsum primis in faucibus orci luctus et ultrices posuere cubilia Curae...
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3Thursday, June 17, 2010
Government Debt reestructuring Lessons: Ahead of Greece worst scenario
Posted by Daweb Mark | Thursday, June 17, 2010 | Category:
|
1 comments
Many "golden" rules broken Have Been Since 2008.
Rules like "Tier 1 bank issued" will never default ... oops!
A bulge bracket bank like Lehman american CAN NOT end up bankrupt ... oops!
or "AAA rating" never defaults ... oops! I did it again! ... You know the song?
... And Many Others.
One scary "golden rule" is the One That Denies That Government bonds default dog .... We Have the same memory spam That's Nemo Dory gold fish ...
The Following is a summary of a very interesting piece UBS credit research on a Potential Debt reestructuring Greek.
What I like about the article is the amazing reestructuring Coverage of Past Government Was Involved IMF WHERE Situations like Pakistan, Moldova, Ukraine, Argentina, Russia, etc.
History Can Explain the future inde ...
A look at Sovereign Debt Restructuring
The meltdown in Bond Markets Clearly today would point to Appear to Increaser pricing of default Risk in
Greece. Given the clamor in the Growing Markets about the Possibility of an IMF-led Debt Restructuring,
we examine the foregoing historical and go on to Explain Why We Do Not expect in the Restructuring
near term in Greece.
What do we know about Past Sovereign Debt restructurings Where the IMF has-been involved?
The first point is to make That There is no 'typical' Restructuring scenario or policy template by Followed
the IMF. Recovery rates (as Judged by looking at the change in net present value of the restructured
Debt) in Past Sovereign Have vary greatly restructurings Depending on the Circumstances and Existing
Debt Levels of Each country, as we explain are below.
Secondly, and Contrary to the Concerns of Some Investors, It Is Not Within The IMF's Mandate to demand
Debt Restructuring That Takes place.
We broadly classify previous dog Sovereign Into Debt restructurings two types:
(I) Pre-emptive: Often restructurings took place in a Manner Negotiated ahead of a more disorderly
default. Recent examples of this include Ukraine (1998-2000), Pakistan (November 1999), Moldova
(June 2002) and Uruguay (May 2003).
(Ii) Post-default: Have restructurings Following OCCUR to dig a missed coupon or principal repayments,
ahead of IMF Involvement Sometimes in the country. Examples include Ecuador (October 1999), Russia
(May 1999, August 2000) and Moldova (April 2004). IMF studies show That Have These cases stretch out to
see a larger Reduction in the Sovereign's Debt, Though They Have Also on average resulting in larger
Contractions in subsequent GDP.
What Happens During Typically to Sovereign Debt Restructuring?
(I) Extension of maturity and / or limited Reduction in coupon payments: This Has Been the more
Restructuring for common form of the "pre-emptive" cases discussed above. Here are coupon payments "
Temporarily reduced, with the balance Being Paid at a future date. This Often Takes place via a Debt
exchange, where an Existing bond is Exchanged for a new bond of longer maturity (examples include
Moldova's June 2002 and Uruguay's exchange offer Debt May 2003 exchange).
Debt reduction, as Calculated by the net present value of the restructured cash flows, you stretch out to be
Relatively Small: 2 to 10% in the case of six case studies Looked at by the 2000 and 2005 IMF1 between'
(Using a fixed 10% discount rate to enable direct comparison).
(Ii) Principal reduction: This form of Restructuring has-been more Prevalent Among the "post-default"
cases discussed above. Considered a More Serious and extreme step, this form of Restructuring Involves
on haircuts permanent bonds. Such In many cases, a distinction has-been made and domestic between'
Creditors non-domestic, with the Form Receiving Preferential terms. There has-been Typically no
'Template' for haircut sizes - Main Reductions include examples of Ecuador in 2000 (NPV Reduction
of 25% in private external debt to Creditors, not for domestic Reduction holders), Russia in 2000 (NPV
Reduction of 44%) and Argentina (NPV 75% Reduction of Debt in the global exchange of 2005).
Reduction of this form Historically Has Been Associated with deeper Economic Contractions in the
Concerned sovereigns, According To the IMF.
It should be Pointed out That all of the above types of Restructuring events are considered as credit for CDS
Purposes, as is the formal subordination of existing Debt. Typically, an ISDA Committee must determine
That a Restructuring credit event has Taken place in response to an investor request.
What has the IMF's role Usually been?
The policy response are hundreds broadly in response to the idiosyncratic nature and of the states Involved
the orientation of the IMF at the time and as Such, There Is No typical template to Refer to policy. As Our
Have colleagues EM Pointed out, more Recent IMF Stand-By Arrangements in EU states Such as
Hungary and Latvia Have to dig a Soft and take a more 'hands off' approach Earlier Than
interventions. We note again, however, That the Circumstances of Those Countries were very Different to
Those of Greece today - fiscal deficits Were Not as high, and balance of payments "Was a key support
factor in the IMF response.
The IMF would Normally be Expected to carry out a Debt sustainability analysis as a first step. Next
Typically steps include targets for the Various metrics Such fiscal deficits, external Debt position, central
bank reserves etc. As Previously we Pointed out, it is Not Within The IMF's Sovereign Remit to direct to
ITS Restructure Debt, Though in the extreme case of Restructuring, the IMF has frequently Been Involved in
Facilitating discussions between' debtor nations and Their Creditors to Ensure an Orderly Restructuring
(Often as part of the IMF's so-Called 'Lending Into Arrears' policy).
What Could Happen in the case of Greece?
The above discussions presuppose Involvement not from the EU side, and here is Where we see the
Difference essential for the Greek case. The key point is to make policymakers wish That the European
this to be seen as an EU-led initiative, DNA Such as It Is in Our view Unlikely That the IMF will be Given
free reign in setting the policy agenda. In Any Event, the IMF fund for Greece are Likely to eat
from EU countries2 disproportionately (see Daily Fixed Income Strategy, 25th March 2010) and with
1 "Cross-Country Experience with Restructuring of Sovereign Debt and Restoring Debt Sustainability", 29th August 2006, International Monetary Fund.
Though two former Greece Eurozone Countries establishing around 27% of IMF's overalls total of quotes, loans made in Any single intervention IMF Are Not
Necessarily made by Members on a pro rata basis. Instead, They are dependent on many Factors - Among Others: Political Interests (Often INVOLVING
Geographical proximity) of Members Towards the state Beneficiary, When a country Became a Creditor. In our view, it is Likely That Eurozone Countries
Contribute to Greater proportionately will amount to the IMF portion of the loans.
In the case of Greece, the initial scenario is Most Likely That the EU and IMF will Insist That Greece
The Measure implements Already Outlined in the Stability Programme submitted by the Greek update
Government to the European Commission in January. Some austerity Additional Measures are possible.
The € 45bn in EU / IMF will be Disburse funds in tranches Following review of performance targets, in
Keeping with standard IMF practice.
We think That the adoption of the above Measures will take place in the first instance and These Measures
Will Be Allowed To Run Their Course. As Previously outline, we see Some relief rally in Greek spreads
When occurring the first tranche of loans has-been Disburse. This should preclude recourse lending to the more
drastic option of immediate Debt Restructuring by Greece, Which has Been Not Precedent in the historical
the IMF's Involvement in Other countries.
In our view, the EU Countries will be very Anxious to Avoid the Debt Restructuring, not least due to the
Exposure to European banking system Greece (See our U.S. credit strategists 'report' UBS U.S. Credit
Compass', 5th February 2010) and Fears of contagion to Other peripherals. In Addition, we discussed as
On Tuesday, the Commitment to EMU as a Cornerstone of the "ever closer union Among the peoples of
Europe "Referred to in Every European Treaty Should Not Be Underestimated, Uncle Tom Recent election
Rhetoric in Germany and elsewhere (Though it should be Noted That the senior coalition partner in
Germany Expressed That Greek view the default party must be preventer as Such a default would break
Up Euro area). These Considerations are Likely to see Being Sufficient funds made available to meet
Greece's near term liquidity needs.
However, as UBS Economists Have Written, debt sustainability Remains a major concern 'and a default in
the medium-term is possible, But Certainly Not Our central case scenario (UBS European Economic
Focus, April 8th 2010). In the hypothetical case Restructuring That Were to OCCUR, historical Precedent
Suggests That the "pre-emptive" Restructuring Referred to above model is the Most Likely outcome. As we
Pointed out, Such cases Typically Have Involved extension of maturity and Debt Exchanges Rather Than the
more extreme case of principal reduction.
Question of seniority of Debt
Investor Concerns Have Also centered on the issue of seniority of EU and IMF loans versus current Greek
bonds. It is worth pointing out That formal subordination of the country's Debt is a credit event. This hasn't
Happened in previous interventions in Hungary IMF, Latvia etc. More Typically, as lender of last resort,
the IMF is de facto senior loan as the Sovereign will be more Inclined to Restructure Debt Other STIs first,
Not paying back ahead of the IMF, IMF Though the loan is not through senior jure. On the U.S. loans, the
Dutch Finance Minister've Already Stated That the U.S. Will Not Have seniority loans over Greek Existing Debt.
Rules like "Tier 1 bank issued" will never default ... oops!
A bulge bracket bank like Lehman american CAN NOT end up bankrupt ... oops!
or "AAA rating" never defaults ... oops! I did it again! ... You know the song?
... And Many Others.
One scary "golden rule" is the One That Denies That Government bonds default dog .... We Have the same memory spam That's Nemo Dory gold fish ...
The Following is a summary of a very interesting piece UBS credit research on a Potential Debt reestructuring Greek.
What I like about the article is the amazing reestructuring Coverage of Past Government Was Involved IMF WHERE Situations like Pakistan, Moldova, Ukraine, Argentina, Russia, etc.
History Can Explain the future inde ...
A look at Sovereign Debt Restructuring
The meltdown in Bond Markets Clearly today would point to Appear to Increaser pricing of default Risk in
Greece. Given the clamor in the Growing Markets about the Possibility of an IMF-led Debt Restructuring,
we examine the foregoing historical and go on to Explain Why We Do Not expect in the Restructuring
near term in Greece.
What do we know about Past Sovereign Debt restructurings Where the IMF has-been involved?
The first point is to make That There is no 'typical' Restructuring scenario or policy template by Followed
the IMF. Recovery rates (as Judged by looking at the change in net present value of the restructured
Debt) in Past Sovereign Have vary greatly restructurings Depending on the Circumstances and Existing
Debt Levels of Each country, as we explain are below.
Secondly, and Contrary to the Concerns of Some Investors, It Is Not Within The IMF's Mandate to demand
Debt Restructuring That Takes place.
We broadly classify previous dog Sovereign Into Debt restructurings two types:
(I) Pre-emptive: Often restructurings took place in a Manner Negotiated ahead of a more disorderly
default. Recent examples of this include Ukraine (1998-2000), Pakistan (November 1999), Moldova
(June 2002) and Uruguay (May 2003).
(Ii) Post-default: Have restructurings Following OCCUR to dig a missed coupon or principal repayments,
ahead of IMF Involvement Sometimes in the country. Examples include Ecuador (October 1999), Russia
(May 1999, August 2000) and Moldova (April 2004). IMF studies show That Have These cases stretch out to
see a larger Reduction in the Sovereign's Debt, Though They Have Also on average resulting in larger
Contractions in subsequent GDP.
What Happens During Typically to Sovereign Debt Restructuring?
(I) Extension of maturity and / or limited Reduction in coupon payments: This Has Been the more
Restructuring for common form of the "pre-emptive" cases discussed above. Here are coupon payments "
Temporarily reduced, with the balance Being Paid at a future date. This Often Takes place via a Debt
exchange, where an Existing bond is Exchanged for a new bond of longer maturity (examples include
Moldova's June 2002 and Uruguay's exchange offer Debt May 2003 exchange).
Debt reduction, as Calculated by the net present value of the restructured cash flows, you stretch out to be
Relatively Small: 2 to 10% in the case of six case studies Looked at by the 2000 and 2005 IMF1 between'
(Using a fixed 10% discount rate to enable direct comparison).
(Ii) Principal reduction: This form of Restructuring has-been more Prevalent Among the "post-default"
cases discussed above. Considered a More Serious and extreme step, this form of Restructuring Involves
on haircuts permanent bonds. Such In many cases, a distinction has-been made and domestic between'
Creditors non-domestic, with the Form Receiving Preferential terms. There has-been Typically no
'Template' for haircut sizes - Main Reductions include examples of Ecuador in 2000 (NPV Reduction
of 25% in private external debt to Creditors, not for domestic Reduction holders), Russia in 2000 (NPV
Reduction of 44%) and Argentina (NPV 75% Reduction of Debt in the global exchange of 2005).
Reduction of this form Historically Has Been Associated with deeper Economic Contractions in the
Concerned sovereigns, According To the IMF.
It should be Pointed out That all of the above types of Restructuring events are considered as credit for CDS
Purposes, as is the formal subordination of existing Debt. Typically, an ISDA Committee must determine
That a Restructuring credit event has Taken place in response to an investor request.
What has the IMF's role Usually been?
The policy response are hundreds broadly in response to the idiosyncratic nature and of the states Involved
the orientation of the IMF at the time and as Such, There Is No typical template to Refer to policy. As Our
Have colleagues EM Pointed out, more Recent IMF Stand-By Arrangements in EU states Such as
Hungary and Latvia Have to dig a Soft and take a more 'hands off' approach Earlier Than
interventions. We note again, however, That the Circumstances of Those Countries were very Different to
Those of Greece today - fiscal deficits Were Not as high, and balance of payments "Was a key support
factor in the IMF response.
The IMF would Normally be Expected to carry out a Debt sustainability analysis as a first step. Next
Typically steps include targets for the Various metrics Such fiscal deficits, external Debt position, central
bank reserves etc. As Previously we Pointed out, it is Not Within The IMF's Sovereign Remit to direct to
ITS Restructure Debt, Though in the extreme case of Restructuring, the IMF has frequently Been Involved in
Facilitating discussions between' debtor nations and Their Creditors to Ensure an Orderly Restructuring
(Often as part of the IMF's so-Called 'Lending Into Arrears' policy).
What Could Happen in the case of Greece?
The above discussions presuppose Involvement not from the EU side, and here is Where we see the
Difference essential for the Greek case. The key point is to make policymakers wish That the European
this to be seen as an EU-led initiative, DNA Such as It Is in Our view Unlikely That the IMF will be Given
free reign in setting the policy agenda. In Any Event, the IMF fund for Greece are Likely to eat
from EU countries2 disproportionately (see Daily Fixed Income Strategy, 25th March 2010) and with
1 "Cross-Country Experience with Restructuring of Sovereign Debt and Restoring Debt Sustainability", 29th August 2006, International Monetary Fund.
Though two former Greece Eurozone Countries establishing around 27% of IMF's overalls total of quotes, loans made in Any single intervention IMF Are Not
Necessarily made by Members on a pro rata basis. Instead, They are dependent on many Factors - Among Others: Political Interests (Often INVOLVING
Geographical proximity) of Members Towards the state Beneficiary, When a country Became a Creditor. In our view, it is Likely That Eurozone Countries
Contribute to Greater proportionately will amount to the IMF portion of the loans.
In the case of Greece, the initial scenario is Most Likely That the EU and IMF will Insist That Greece
The Measure implements Already Outlined in the Stability Programme submitted by the Greek update
Government to the European Commission in January. Some austerity Additional Measures are possible.
The € 45bn in EU / IMF will be Disburse funds in tranches Following review of performance targets, in
Keeping with standard IMF practice.
We think That the adoption of the above Measures will take place in the first instance and These Measures
Will Be Allowed To Run Their Course. As Previously outline, we see Some relief rally in Greek spreads
When occurring the first tranche of loans has-been Disburse. This should preclude recourse lending to the more
drastic option of immediate Debt Restructuring by Greece, Which has Been Not Precedent in the historical
the IMF's Involvement in Other countries.
In our view, the EU Countries will be very Anxious to Avoid the Debt Restructuring, not least due to the
Exposure to European banking system Greece (See our U.S. credit strategists 'report' UBS U.S. Credit
Compass', 5th February 2010) and Fears of contagion to Other peripherals. In Addition, we discussed as
On Tuesday, the Commitment to EMU as a Cornerstone of the "ever closer union Among the peoples of
Europe "Referred to in Every European Treaty Should Not Be Underestimated, Uncle Tom Recent election
Rhetoric in Germany and elsewhere (Though it should be Noted That the senior coalition partner in
Germany Expressed That Greek view the default party must be preventer as Such a default would break
Up Euro area). These Considerations are Likely to see Being Sufficient funds made available to meet
Greece's near term liquidity needs.
However, as UBS Economists Have Written, debt sustainability Remains a major concern 'and a default in
the medium-term is possible, But Certainly Not Our central case scenario (UBS European Economic
Focus, April 8th 2010). In the hypothetical case Restructuring That Were to OCCUR, historical Precedent
Suggests That the "pre-emptive" Restructuring Referred to above model is the Most Likely outcome. As we
Pointed out, Such cases Typically Have Involved extension of maturity and Debt Exchanges Rather Than the
more extreme case of principal reduction.
Question of seniority of Debt
Investor Concerns Have Also centered on the issue of seniority of EU and IMF loans versus current Greek
bonds. It is worth pointing out That formal subordination of the country's Debt is a credit event. This hasn't
Happened in previous interventions in Hungary IMF, Latvia etc. More Typically, as lender of last resort,
the IMF is de facto senior loan as the Sovereign will be more Inclined to Restructure Debt Other STIs first,
Not paying back ahead of the IMF, IMF Though the loan is not through senior jure. On the U.S. loans, the
Dutch Finance Minister've Already Stated That the U.S. Will Not Have seniority loans over Greek Existing Debt.
Yes. I like demagogy ... but its fun and all the info Financial depicts in the graph is very real.
See you next ...
By the way, Demagogy ordemagoguery (Ancient Greek δημαγωγία, from δῆμοςdemos "People" and ἄγεινagein "To lead") is a strategy for GainingPolitical Power by Appealing to thePrejudices,emotions,Fears andExpectations Typically of the public-via impassionedRhetoric andpropaganda, And Often usingNationalist,populist orreligieuse themes. What qualified as demagogy has-been the subject of debate and Ambiguity SinceAristophanes Used the first term, in reference toCleon.
See you next ...
By the way, Demagogy ordemagoguery (Ancient Greek δημαγωγία, from δῆμοςdemos "People" and ἄγεινagein "To lead") is a strategy for GainingPolitical Power by Appealing to thePrejudices,emotions,Fears andExpectations Typically of the public-via impassionedRhetoric andpropaganda, And Often usingNationalist,populist orreligieuse themes. What qualified as demagogy has-been the subject of debate and Ambiguity SinceAristophanes Used the first term, in reference toCleon.
Just a few notes for those of you interested in knowing the reality of this market, after all the nonsense that have been pouring in numerous blogs and newspaper articles.
1. The photovoltaic energy investors are speculators who have covered the cost of public funds.
False. Investors who have invested under the protection of Royal Decree 661 returns were obtained (before leverage) of around 9% -9.5% before income tax, IBI and taxes on dividends.
Therefore, the return (tax efficient) real has been about 7% to 25/40 years.
2. Investors in PV do not take risks. Investment is a bargain.
False.They took a risk technological, regulatory, operational, weather and more importantly, breaks with the promoter. It seems just a trifle.
These investors purchased extremely expensive machinery taking a risk to 25/40 years.
The standard equipment for a small garden of 100kw cost between EUR600, 000 EUR900, 000 by technology.
3. How does it compare with other similar ones that cost?
Is moderate. The profitability of these investments to be explored as the performance of an entrepreneurial society with all its risks, not like a bond or a financial deposit.
A Bank's AA-rating as Banesto remuneration in the short term to 4%. The Spanish treasury bond rated AAA remunerated above 4% over 10 years.
If a solar garden crediciticia had a rating (rating) would be around the BBB (investment grade scaling), which is six steps below AAA in Spain.
It would be logical to think that solar investments with this level of rating should be much more than 5% risk premium above Spain (AAA) and that investment is a real company not only pays URI, IBIS, but Corporate Tax which has operational risks such as theft of copper, air crashes, network failures such as blackouts, lower performance of the plates, etc.
4. Has anyone covered in this market?
Yes. The developers, equipment manufacturers, banks and municipalities (raising the IBIS and licenses).
5. Is it fair that municipalities have been covered?
No. The municipalities have taken advantage of their power to arbitrarily introduce new taxes and opportunistic as the IBI adapted to solar farms.
There have been cases where they have gone hand in hand with the licenses.
6. Is it fair that developers, banks and manufacturers have been covered?
Yes. In an economy consistent with moderate capitalism, the fact that a businessman who put their capital at risk and effort is paid above the "riskless rate" seems to be quite acceptable as an axiom.
Both promoters and manufacturers and financial institutions matched their vision of the market and must be paid for it. Margins have been obtained consistent with industrial or financial risks.
7. What would happen if the premiums go down under the umbrella project of Royal Decree 661 retroactively?
1. No international or domestic investors will consider investing in infrastructure never regulatory risk in a country with legal protection "Banana."
2. Loss of jobs in renewable because the sector as such would disappear to go to other countries.
3. Possible downgrade the ratings of Spain in one or two notches to AA-or even A + by the lack of legal certainty and economic of the Spanish market.
4. Bank defaults.
5. Banks will not lend to finance more projects with regulatory risk in Spain. Even the local banks.
6. Claims multimillion (administrative law) that would last 10/20 years and 95% of probability is pay off against the public treasury, but in 20 years.
7. Increased cost of debt from the Spanish treasury at 0.50% -1% (for the descents of rating and discounting the present value of multi-million dollar claims)
8. Why energy in Spain is expensive?
The government opted for alternative energy for years, being perfectly aware that they were much less profitable than nuclear energy.
In any case, if the cost of power is expensive, must be transferred to the electric bill immediately.
That cost has not been transferred for political reasons. Since the game to go up the invoice price would be stigmatized.
Make public opinion against the investors (speculators "malicious") is not only demagogy and lack of truth but merely a short-term solution.
Sooner or later (new infrastructure plan) will be needed again to help the state to develop projects that are viable with public resources.
9. Is it a good idea that Spain is a spearhead in alternatives?
Yes. It seems quite clear that new technologies, alternative energy, research and development are what differentiate us from the Spain of "castanets" of recent years.
It is over to grow the country's gross domestic product based on "prawns" - hotel industry - and "brick" - the real estate sector.
It should encourage alternative energies with a credible plan to create legal and economic stability for the next thirty years.
Do not change the Royal Decree every two years like the last class of "Mc Donalds".
And most importantly, can not be changed mid-game the game that gave the investors.
In addition it is unethical, it is very practical in the medium term. See the negative consequences described in section 7 of this Article.
Antonio Rivela
Industrial Engineering from ICAI
1. The photovoltaic energy investors are speculators who have covered the cost of public funds.
False. Investors who have invested under the protection of Royal Decree 661 returns were obtained (before leverage) of around 9% -9.5% before income tax, IBI and taxes on dividends.
Therefore, the return (tax efficient) real has been about 7% to 25/40 years.
2. Investors in PV do not take risks. Investment is a bargain.
False.They took a risk technological, regulatory, operational, weather and more importantly, breaks with the promoter. It seems just a trifle.
These investors purchased extremely expensive machinery taking a risk to 25/40 years.
The standard equipment for a small garden of 100kw cost between EUR600, 000 EUR900, 000 by technology.
3. How does it compare with other similar ones that cost?
Is moderate. The profitability of these investments to be explored as the performance of an entrepreneurial society with all its risks, not like a bond or a financial deposit.
A Bank's AA-rating as Banesto remuneration in the short term to 4%. The Spanish treasury bond rated AAA remunerated above 4% over 10 years.
If a solar garden crediciticia had a rating (rating) would be around the BBB (investment grade scaling), which is six steps below AAA in Spain.
It would be logical to think that solar investments with this level of rating should be much more than 5% risk premium above Spain (AAA) and that investment is a real company not only pays URI, IBIS, but Corporate Tax which has operational risks such as theft of copper, air crashes, network failures such as blackouts, lower performance of the plates, etc.
4. Has anyone covered in this market?
Yes. The developers, equipment manufacturers, banks and municipalities (raising the IBIS and licenses).
5. Is it fair that municipalities have been covered?
No. The municipalities have taken advantage of their power to arbitrarily introduce new taxes and opportunistic as the IBI adapted to solar farms.
There have been cases where they have gone hand in hand with the licenses.
6. Is it fair that developers, banks and manufacturers have been covered?
Yes. In an economy consistent with moderate capitalism, the fact that a businessman who put their capital at risk and effort is paid above the "riskless rate" seems to be quite acceptable as an axiom.
Both promoters and manufacturers and financial institutions matched their vision of the market and must be paid for it. Margins have been obtained consistent with industrial or financial risks.
7. What would happen if the premiums go down under the umbrella project of Royal Decree 661 retroactively?
1. No international or domestic investors will consider investing in infrastructure never regulatory risk in a country with legal protection "Banana."
2. Loss of jobs in renewable because the sector as such would disappear to go to other countries.
3. Possible downgrade the ratings of Spain in one or two notches to AA-or even A + by the lack of legal certainty and economic of the Spanish market.
4. Bank defaults.
5. Banks will not lend to finance more projects with regulatory risk in Spain. Even the local banks.
6. Claims multimillion (administrative law) that would last 10/20 years and 95% of probability is pay off against the public treasury, but in 20 years.
7. Increased cost of debt from the Spanish treasury at 0.50% -1% (for the descents of rating and discounting the present value of multi-million dollar claims)
8. Why energy in Spain is expensive?
The government opted for alternative energy for years, being perfectly aware that they were much less profitable than nuclear energy.
In any case, if the cost of power is expensive, must be transferred to the electric bill immediately.
That cost has not been transferred for political reasons. Since the game to go up the invoice price would be stigmatized.
Make public opinion against the investors (speculators "malicious") is not only demagogy and lack of truth but merely a short-term solution.
Sooner or later (new infrastructure plan) will be needed again to help the state to develop projects that are viable with public resources.
9. Is it a good idea that Spain is a spearhead in alternatives?
Yes. It seems quite clear that new technologies, alternative energy, research and development are what differentiate us from the Spain of "castanets" of recent years.
It is over to grow the country's gross domestic product based on "prawns" - hotel industry - and "brick" - the real estate sector.
It should encourage alternative energies with a credible plan to create legal and economic stability for the next thirty years.
Do not change the Royal Decree every two years like the last class of "Mc Donalds".
And most importantly, can not be changed mid-game the game that gave the investors.
In addition it is unethical, it is very practical in the medium term. See the negative consequences described in section 7 of this Article.
Antonio Rivela
Industrial Engineering from ICAI
Structured products linked to issuers who have broken: Lehman
Posted by Daweb Mark | | Category:
|
1 comments
Only a few lines to give my personal opinion on the choice of issuers for structured products ...
First of all cited as examples in Icelandic banks, Enron, Worldcom, Railtrack or more recently Lehman Brothers.
Curiously, no European firm belonging to the iTraxx has broken down as belonging to the iTraxx credit index.
By the way the index is the world iTraxx credit Eurostoxx same as the European stock exchange. The difference is 125 firms (bonds) instead of 50 (shares).
In this sense the Europeans should be proud. In reality, this indicates that many European companies (France Telecom, Electricite de France, etc..) Dad would be helped by breaking state before, but that is another story. Although it takes us to the moral: "The next time you invest in European issuers Think about him first."
Gradually, as the reader will encroach on these lines is proving that I'm not talking about derivatives and structures ....
Why?
Because today is the king credit, the issuer or rather the guarantor of the issue we are buying.
The next time you buy a bond, instead of looking at the type of structure, focus your attention on credit risk by looking at the quality of the issuer.
How?
Thanks to the rating or credit score. Must be at least investment grade. (> BBB-)
Although I recommend a minimum of AA, to be sure.
Why AA?
Because although the rating A (single A) was commonly accepted as a great rating in 2007/2008, there have been three cases of "book" of direct migration from the A to bankruptcy in less than a month: Icelandic banks, Enron and Lehman Brothers. I'm talking head. Sure there have been many more.
In summary ...
The next time you buy a bond structured ... pay a little more and buy AA. You'll thank me.
First of all cited as examples in Icelandic banks, Enron, Worldcom, Railtrack or more recently Lehman Brothers.
Curiously, no European firm belonging to the iTraxx has broken down as belonging to the iTraxx credit index.
By the way the index is the world iTraxx credit Eurostoxx same as the European stock exchange. The difference is 125 firms (bonds) instead of 50 (shares).
In this sense the Europeans should be proud. In reality, this indicates that many European companies (France Telecom, Electricite de France, etc..) Dad would be helped by breaking state before, but that is another story. Although it takes us to the moral: "The next time you invest in European issuers Think about him first."
Gradually, as the reader will encroach on these lines is proving that I'm not talking about derivatives and structures ....
Why?
Because today is the king credit, the issuer or rather the guarantor of the issue we are buying.
The next time you buy a bond, instead of looking at the type of structure, focus your attention on credit risk by looking at the quality of the issuer.
How?
Thanks to the rating or credit score. Must be at least investment grade. (> BBB-)
Although I recommend a minimum of AA, to be sure.
Why AA?
Because although the rating A (single A) was commonly accepted as a great rating in 2007/2008, there have been three cases of "book" of direct migration from the A to bankruptcy in less than a month: Icelandic banks, Enron and Lehman Brothers. I'm talking head. Sure there have been many more.
In summary ...
The next time you buy a bond structured ... pay a little more and buy AA. You'll thank me.
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