And You Lose Some

Some may recall that several months ago I bought some lottery tickets.

They had the drawing today, and I didn’t win.

Anthracite (the commercial mortgage REIT managed by Blackrock) filed for Chapter 7 bankruptcy today.  I had hoped they could stave off the secured lenders (repo) long enough to come out with a negotiated payoff that gives a little to each class of owner/lender.

Common shares that I paid as little as 17 cents apiece for are trading today around 3 cents.  The preferred shares, which I hoped might get a negotiated payout around 10 cents on the dollar ($2.50 apiece) are now trading at 20 cents.

There is still some potential in the preferreds, but the secured lenders have now forced the issue into the hands of a court-appointed trustee for liquidation.  Since the preferreds are unsecured creditors, they stand next-to-last in line.

I’ve taken some of my lumps in the common, but I draw the line around the current level of three cents a share.  After all, outfits like GKK (Gramercy Capital) and ABR (Arbor Realty Trust) have rallied by several hundred percent from their lows last year, reflecting the partial recovery of the values for their subordinated CMBS holdings.

Anthracite’s portfolio will be auctioned off, and it does have the potential of catching a bid, especially given how many “vulture” funds are out there looking for cheap debt to bid on.

The way these bidders are likely to look at the auctions will vary by bidder, with some simply playing for partial recovery of bond prices, others looking at it as a stream of interest payments until eventual default, and still others combing through the organizing documents of each loan and each bond deal to find a few properties they want to control by controlling the debt.

As I said at the time, I hope no one risked any money they couldn’t afford to lose.

I also broke one of my own little trading rules with this one:

If you buy a cheap stock and it doubles, sell half.

Why is it that I have to keep learning the same lessons over and over?

hh

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2 Responses to And You Lose Some

  1. Kevin says:

    Howard you are not alone in learning these lessons. Thanks for keeping us updated. I always enjoy reading your thoughts.

  2. Patrick says:

    For what it’s worth, Gramercy didn’t fare too well today. I postulated via Seeking Alpha a few months ago that it was the nature and the amount of recourse debt that makes the difference between which commercial mREITs survive and which ones don’t.

    http://seekingalpha.com/article/176051-recourse-debt-roils-cre-backed-mortgage-reits

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