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Subprime Upheaval Reaches Municipal Bond Insurers

November 15, 2007
Brian Battle, Rob Livingston

The current upheaval in the sub‐prime mortgage market is having far‐reaching effects on the financial world. We are beginning to see the ripples from the subprime meltdown reach the AAA rated municipal bond insurers. All three major rating agencies, Fitch, Moody and S&P, stated last week that they are in the process of evaluating the municipal bond insurers. Fitch Ratings added that they ʺmay lower the AAA credit ratings on one or more bond insurers after a new review of the companies capital takes into account downgrades of the collateralized debt obligations that they guarantee.”

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CRA Does Not Have To Be A Loss Leader

November 13, 2007
The Disciplined Investor®

As you may or may not recall, we have been introduced to a wholesale CRA eligible Small Business Investment Company (SBIC) fund, the Aldine Fund, that one of our high performing clients is sponsoring. They will invest up to $20 million in this fund and, as such, will vouch for the integrity, competency, and experience of the fund managers. The fund is expecting to earn a 16% to 18% return over its life by making mezzanine loans to (or subordinated debt investments in) small to mid‐sized companies ($10 million to $100 million in revenues). Many of you may be satisfying part of your CRA requirement through other wholesale vehicles, like FNMA mortgages. The trade‐off to consider is whether one would be better buying the sure, 5.50% via agency‐backed mortgages or taking on some degree of risk for a much higher expected return through a vehicle like the Aldine fund. Both are eligible for CRA.

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