Bank of America's Immediate Goals: Simplified
Naked Capitalism on, um, a mess (Bank of America would know):
With more than half the corporate bonds rated junk, thanks to highly-levered takeovers, it wasn’t hard to imagine that a protracted economic bad spell could lead to a lot of defaults.
A related issue that has not gotten the press it deserves is that the novel feature of the binge of late-cycle merger loans, “cov lite” deals, will make the damage worse. Normally. companies that borrow heavily have to agree to meet certain requirements (covenants) like maintaining a minimum net worth. If the debtor breaches those stipulation, the lender can accelerate the debt, meaning demand it be repaid immediately. That does not necessarily happen, but the acceleration clause allows the creditor to renegotiate the obligation in light of the borrower’s deteriorating financial condition, and that can include tough measures like asset sales or a restructuring, or forcing the company into Chapter 11.
What happens in the new world of cov-lite? Well, the company goes to hell and the borrowers can’t do much to intervene. The result is if the company continues to decay, it will wind up in bankruptcy, but later and therefore in a weaker state than if the creditors had forced it into bankruptcy sooner.
In related Bank of America news (fuck, will Ken Lewis ever get a break?):
The FBI and Department of Justice are conducting a criminal probe into Bank of America Corp.’s purchase of Merrill Lynch last year, the Charlotte Observer reported yesterday.
The investigation has been under way for six months, the newspaper reported.
A Bank of America spokesman declined to confirm whether the FBI or Justice Department were investigating. Spokesmen for the FBI and Justice Department neither confirmed nor denied that a probe was underway.
“We have provided thousands of documents and had numerous meetings with various government agencies regarding the Merrill Lynch transaction,’’ Bank of America spokesman Scott Silvestri said.
Again, I recommend no one throw Bernaulson under the bus ever again, if there could be any doubt at this point. Bank of America is taking it from all sides and still refuses to perform government-mandated (might as well be) loan modifications. As Jr Deputy Accountant has [legal disclaimer: for entertainment purposes only] suggested previously thanks to WC Varones, don't modify, just walk away. What are they going to do to you? Scared about the dents on your credit report? Please. Live within your means.
Oh wait, BofA is performing loan mods. Cranking up payments.
So much win, BAC, keep up the fantastic work.