You have the most beautiful entry point in FMD ever known to mankind. Do you really think Goldman Sachs won't resolve this problem for FMD? Do you really think Goldman will allow their 260 million dollar (5.3 million share) stake to waste away? You can bet your sweet ass they are on the phones as we speak lining up a substitute to TERI as I write this. The Golden Darling of Wall Street is on it. After all, FMD has no exposure here anyways. They haven't filed for bankruptcy. Their long-time insurer has. They only need a new insurer to be rockin' and rollin' once again, and with a Democratically controlled Congress, you can bet your sweet ass that HIGHER EDUMACATION student loans are a priority, baby cakes. Goldman will find that insurer. You can take that to the bank. Especially on a loan portfolio that generates up to 11% interest, with debts that can't be discharged in bankruptcy (per bankruptcy code amendment, unlike credit card and mortgage debt), and follows the borrower for life. Lucky bastards. http://www.bloomberg.com/apps/news?pid=20601087&sid=a1qZ2.PU2j0Y&refer=home First Marblehead Tumbles, Guarantor Files Chapter 11 (Update5) By Jody Shenn April 8 (Bloomberg) -- First Marblehead Corp., the third- largest U.S. arranger of securities backed by student borrowing, tumbled 37 percent after the guarantor of its loans sought bankruptcy protection. First Marblehead dropped $2.84 to $4.86 in New York Stock Exchange trading after Education Resources Institute Inc., or TERI, filed for Chapter 11 in Boston yesterday. The percentage decline is the biggest one-day drop in the stock's history and pushes First Marblehead down 89 percent for the past 12 months. The bankruptcy filing means Boston-based First Marblehead may incur losses from any defaults, Friedman Billings Ramsey analyst Matt Snowling said. TERI, the largest nonprofit guarantor of private student loans with more than $16 billion insured, cited added cash demands after a credit-rating downgrade and tumbling demand for student-loan bonds for its failing finances. The filing ``now shifts credit risk back'' to First Marblehead, Snowling, who is based in Arlington, Virginia, said today in a research note. The slump in credit markets sparked by the collapse of U.S. subprime mortgages cut into demand for private and government guaranteed student loans, prompting lenders including CIT Group Inc. and NorthStar Education Finance Inc. to quit the business. First Marblehead, which makes loans on behalf of banks including JPMorgan Chase & Co., Bank of America Corp., and Royal Bank of Scotland Plc, hasn't issued student-loan bonds since September. `Working Diligently' No new private student-loan securities have been issued in the asset-backed market this year and government-backed offerings have tumbled 65 percent. The drop doesn't include the market for auction-rate securities backed by the debt, a form of financing used by state and local agencies, which is closed. ``We've gone from `unprecedented liquidity,' meaning anyone can get it and it's cheap, to `unprecedented liquidity' which is it's tough to get it and it's expensive,'' said Tamera Briones, chief executive officer at San Francisco-based private student lender Education Finance Partners Inc., in which Morgan Stanley has a minority stake. ``In a very short amount of time.'' First Marblehead ``is working diligently on securing an alternative guarantor as well as structural solutions for loan default guarantees for future originations,'' according to a statement today. Funding Gap The company issued $3.5 billion of securities backed by student loans last year, making it the third biggest behind Reston, Virginia-based SLM Corp., or Sallie Mae, and New York- based Citigroup Inc. Under the agreement with TERI, First Marblehead issues loans, usually on behalf of banks, and then has those loans guaranteed by the nonprofit. The loans are then packaged into securities sold to investors. First Marblehead also holds the riskiest pieces of those securities, demonstrating why TERI's inability to make good on its guarantees may cause losses. Providers of private education loans, such as First Marblehead, help students fill the funding gap between what's available with government-backed loans and the costs of college. Private loans have been the fastest growing segment of the market, growing to $18.5 billion in the 2006-2007 academic year, or 19 percent, from $1.8 billion a decade earlier, according to First Marblehead. Junk Rating Moody's Investors Service last month downgraded TERI to below investment grade, triggering a demand from a bank that the company set aside cash reserves to cover potential losses. The action came as a drying up of sales of new student-loan bonds cut into the upfront cash the nonprofit got from First Marblehead. The ratings firm said defaults were particularly higher than it anticipated among First Marblehead loans to students who didn't work with financial-aid offices. New York-based Moody's cut TERI five levels to its second-lowest grade of Ca today. In response to increasing financing costs and rising delinquencies, First Marblehead has raised rates, tightened guidelines and stiffened collection practices. ``We have adjusted our collection and underwriting strategies to adapt to the challenges presented by the turmoil in the capital markets and the current consumer credit cycle,'' the company said in the statement today. In December, Goldman Sachs Group Inc.'s private-equity arm agreed to inject $260.5 million of capital into the company, which had a $117.7 million loss in its quarter ended Dec. 31. Stuck With Loans Banks are also stuck with student loans guaranteed by TERI that First Marblehead hasn't been able to sell as securities. JPMorgan also issues some loans without First Marblehead, Thomas Kelly, a spokesman, said in a telephone interview, declining to immediately comment further. Barbara Cottam, a spokeswoman for Royal Bank's Charter One unit, didn't respond to a telephone message. ``It's too soon for us to know what impact it will have on our customers,'' Diane Wagner, a Bank of America spokeswoman, said about TERI's filing, declining to comment further. TERI aims to cover all of its guarantees, Willis Hulings, the nonprofit's chief executive officer, said in a telephone interview yesterday. ``It's essentially kind of your classic liquidity situation,'' Hulings said. ``This was the best action for us to take in order for us to preserve both our company as well the rights of all the creditors against one's contractual right to cash.
I kind of agree but do you think a company like Goldman would place a $236 million long shot bet? I think they would. They stand to make billions, stand to lose $236 mil. It's smart money but it's also a drop in the bucket on Q2's 8k if it goes under. I agree it's a good long shot bet, just wouldn't risk too much on this one. Maybe some cheap OTM calls would work.
They stand to make billions even if FMD retraces to 50% of its high (around $45) since their entry point is around $13 on an average basis. Also, on loans generating 7% to 11% interest, and that are not dischargeable in bankruptcy, the credit risk is less than credit card or mortgage debt, even if one assumes that the default rate accelerates above its approximate 5% range now. Look at FMDs balance sheet, also. No debt. 900 million in revenue in 07. 330 million in net profits in 07. They have assets on hand allowing them to weather a very long storm, let alone a short one. Goldman Sachs is not just going to let a 260 million dollar investment waste away, when, as you've said, they stand to make billions, the fix is an easy one, and, well, they're Goldman (that whole pride issue - they've escaped unscathed so far; why ruin a good thing?)
ByLoSellHi Registered: Jul 2006 Posts: 3693 04-08-08 10:30 PM You have the most beautiful entry point in FMD ever known to mankind. Do you really think Goldman Sachs won't resolve this problem for FMD? Do you really think Goldman will allow their 260 million dollar (5.3 million share) stake to waste away? You can bet your sweet ass they are on the phones as we speak lining up a substitute to TERI as I write this. The Golden Darling of Wall Street is on it. After all, FMD has no exposure here anyways. They haven't filed for bankruptcy. Their long-time insurer has. They only need a new insurer to be rockin' and rollin' once again, and with a Democratically controlled Congress, you can bet your sweet ass that HIGHER EDUMACATION student loans are a priority, baby cakes. Goldman will find that insurer. You can take that to the bank. Especially on a loan portfolio that generates up to 11% interest, with debts that can't be discharged in bankruptcy (per bankruptcy code amendment, unlike credit card and mortgage debt), and follows the borrower for life. Lucky bastards. So tell us all,how many shares or options are you purchasing for this trade and what is the time frame you are considering?
I purchased x,000 shares @ 7.64, and I purchased x,000 shares today @ 4.75, with an average price of 6.195. It's purely a wait and hold. I think the irrationality of the credit crisis pushed TERI into the corner they got shoved into, lining up a substitute backer of this student loan debt won't be difficult when cooler heads prevail, that this is a beautiful mixture of profit and public policy as dual goals, and that recessionary or contractionary economic periods are generally good for higher education. I may go big if I have the brass cojones and buy a boatload tomorrow, assuming this stays leveled off.
Well, as I said, I do agree with you. I bid on June 10 calls AH, we'll see if I fill tomorrow. I'm just not too sure of a new guarantor stepping in right away, but that is what my bet is placed on. Hence not a large bet for me.
This is the stock section. It's exclusively for pumping. Make up and cosmetics is several rungs down. <object width="425" height="355"><param name="movie" value="http://www.youtube.com/v/WeW_Zd2B2zU&hl=en"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/WeW_Zd2B2zU&hl=en" type="application/x-shockwave-flash" wmode="transparent" width="425" height="355"></embed></object>