YouSaid · the spoken record

Brett Jefferson

lines on the record: 108
first: 2024-09-12
most recent: 2024-09-12
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“And you were a partner. You were looking at what the other people were doing. And if you didn't like it, you spoke up. So if you were in the corporate bond desk and you look over the mortgage desk and you said, why are you guys buying all these subprime bonds? I don't like it. Get out of them. That would happen. What changed was that when they became public companies, people were getting compensated on short-term results. So how much can I produce in one year? Oh, well, I have to hold all the senior bonds. Well, those have no risk for them. Oh, I need to create more. I'm going to put this person in business and I'm going to sell my stuff to him. I mean, that's where the conflicts really happen. And that's where some of the problems occur. You can talk about like, you know, never should have happened. Yeah, you're right. Never should have happened. Did happen, you know, but it happened because there was a place for them to go and to be, we'll call it securitized. That gave the securitization market a really, really bad name for a while. There are more and more assets.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Money down. The only way you could do that is you put them into a CDO. What I will tell you is the one thing which I don't think a lot of people talk about is, you know, 10 years before most of the banks were private. And within that 10 years span, they went public.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Just talk about that for a second. The CLO market is boomed, okay? It's over a trillion dollars. That's broadly syndicated loans. That's huge. That's never going away. And it's also more efficient. There's more smart people in there. And I'm just saying like, you know, there used to be times where you could just find things and just shake your head and be like, how are people? There are smart people in the CLO market. It's big. It's not going anywhere. Then you have the private credit. Okay, the private CLO, the middle market CLO market. That's very, very big. So people are securitizing these private credit loans and in many instances taking the, you know, mezzanine tranches and putting them into the CDOs and the senior funding is being sold to a bank. That's much bigger than it was. What you had pre-crisis is, look, you had so many conflicts of interest. You were creating assets that were destined to fail. People were buying houses with no.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“That's okay. Yeah, I mean, probably a few college kids listening to this now who's listening to this, they must be interested in it. Yeah, I mean, the world of the structure credit has shrunk since, I mean, 2007, it was just, it was an absolutely huge CDO market, right?”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“I could go work at Google, or I could go look at structured products. You know, we're losing out to Google, but that's okay. That's okay.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“No one's financing. Okay, my downside is five. My upside is pin me on my part, pin me all my interest. That's pretty good. Let's see if it happens. Okay. We're out of that world now. That world doesn't exist anymore. Now we have assets that are all performing. They're paying. They're doing well. Banks don't have any problems anymore. We got CLOs. We got all these other things. But now I have term funding. So now I have term funding in there. And what I'm trying to do is take advantage of, we'll call it a 10 times leverage, but I've got assets that are a little bit wider. Okay, and I'm finding other assets and I'm creating other assets. And I'm saying I can create better assets at a wider spread where I hold this and get that net interest margin. And that's a CD, we'll call that a CDO on sterile. Super betas. Okay. We got a lot of different words. I mean, we're just structured products geeks that sit around all day long and talk about structured product. And it's not that exciting. Like there's no college kids sitting there like, gee, I really want to like, you know.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“You're absolutely right. My point is you have just gone and sold a liability. You have sold an annuity at six percent. You were investing, let's just say 8%. Okay. The assets that you were investing at 8% went down to 5% and got called away. You now have to buy assets at 5%. You can't pay off that liability. That liability can't be paid off by you, but it can be called by the person and a penalty, person who bought it. And that's where the callability risk really comes into it. And I think that's where the way that we look at the world and look at it just when I say similar to a CDO. And a CDO, you're trying to take advantage of the spread, the net interest margin, the difference between your assets and your liabilities, your cost of funds for your residual. When I'm buying a trust preferred CDO at Five Cents in the dollar.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Buying corporate bonds when all of a sudden you're buying these corporate bonds at seven and a half percent, you're reinsuring annuity, let's just say at 5%. And all of a sudden these corporate bonds go down in price, people are going to call away those corporate bonds. But you've got a liability outstanding, right? That liability hasn't changed. We have assets that we don't feel have callability. They don't have call risk. And a CDO or a CLO, you're buying loans, you're working within these rules, and you're trying to maximize the way that you put this together within those rules. It's the same. It's a very similar concept.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Here's what I would say we have a reinsurance company, other people set up reinsurance or insurance companies. These are private equity firms, KKR, Apollo, Blackstone. They all got, they all got. And they're funding most of their stuff that they're originating. Security benefits, another one. They're going out. They're funding stuff. When I say it's a CDO on steroids, what it is, is we're buying debt, which is what you do in a CDO. We have rules that we have to adhere to, whether rules from an insurance regulator, whether rules from the counterparty that we're reinsuring, and we have to meet these certain rules. We have to meet rating requirements. We have to match up the duration of the assets and the callability. Many people are not looking at the callability of the assets. If you go out and you buy corporate bonds to reinsure an annuity, and let's just say you did that when the 10-year was at, we'll call it close to 5%, okay?”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“But we want to go get into seals. We are in CELOs. We're saying we want to get into them now. You can't just go out and put $100 million to work. It takes time to find these things and source them. Okay. It takes the understanding the market, having the relationships. We partner up probably in structured products.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Up in value. So, what I'm saying is that we've created a very, very small reinsurance company. We're looking to be $10 to $15 billion. Apollo's $250 billion. How selective can they be? How selective can they be? If they're looking at structured products, and I'm telling you, they're these small little nichey opportunities that we always find. And those exist, but I can't find $50 billion of them, right? That's where there is a huge law of diminishing returns. The larger you get in structural products, the more your returns are going to go down because you can't find those great opportunities. What we are master odlauders, right? We're buying small little pieces over time. And if it's a fund that we have and it's been around for a long time and all of a sudden we said we want to switch and go into, you know, we're not CLO.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“No, no, no, no, no, no, no, no. Hildine is the largest player in a very tiny market called Trust Preferred CDOs, which is a great asset class because there's just, there's not that many people who plan it. It's not marked that much. Not so many people analyze it. So it's just, it still trades much wider. If you went out and traded, it traded much wider. And you have to understand something. Most of the time when we were buying this, we were buying little bike sizes. Most funds are set up or most insurance companies or most banks are set up where it's like, okay, I have to go set up a platform. If I would have set up a platform to go buy trust preferred CDOs and Hildean owns them all and they have the advantage and they're going to get the looks, I'm not going to ever be able to get anything. And what also happened when people would come into this market, they'd come in and then all of a sudden they'd be able to buy a couple things because there'd be like some large auctions. But then they couldn't get any more. And they're like, okay, you know, what am I doing with this stuff? Like, I might as well just get rid of it because it's.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Kind of Warren Buff is very different. Warren Buffett has built so much surplus that he just buys stocks. We're doing this is we have to finance these things. So we have to buy certain assets that fit certain rating qualities, certain criteria. We have to have a diversified pool. But in many ways, many ways, it's a lot like a CDO. You know, I used to call it when we first were looking at it, it's like a CDO on steroids. Because we understand structured products so well, we were really able to get our arms around this. The members of Hildine are the largest investor in this, okay? And I'd rather be nowhere else than this because I believe in these assets. I believe in me. I believe in my team and getting this type of non-mark to market funding that's long term couldn't ask for anything better. And by the time it's done, I'm probably going to be going to be set to retire because I ain't young.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“A lot of private equity firms, private credit firms in some way are following the Warren Buffett Geico model of own an insurance company and then use the very cheap liabilities, the cheap, you know, not deposits because it's not a bank, but the cheap money to fund other securities. I mean, that's the whole game of insurance. So go ahead, go ahead.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“I don't think there's going to be massive problems. But what I do know is that at 10 to 15 billion dollars finding those assets over the next five years, I know I can find some of the best stuff there is out there. And I've already got a huge, huge jump start because all those trucks that I had that have all that optionality have moved in and all these other CLOs that we have great looks into and understand and non-QM mortgages. I mean, that's where we're very different. That's where we're very different.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“I got 10 times leverage. So I'm going to make 45%. And I know these assets well. The one thing about these assets is if you hold them in monthly liquidity, yearly liquidity, you got to get good financing on them, and that's hard to do. Now I have great financing on. I have 10 times leverage at 6%. You can't get any better than that. And a lot of people are doing this. But you know what a lot of people are doing. Most of the private equity firms, and they're all going out and they're issuing this private credit, and they're putting it into it. I don't know. I mean. You know, I'm not a single name credit person, but I just look at things when they get a little too incestuous and I'm saying there's a lot of private credit being issued out there. And the one thing I do know is that if you go out and you raise money and you don't find something you like, you're not going to give the money back. Like if you're a bank and you have to put money to work, you can go buy a security. You can go buy a treasury. But if you raise a private credit fund and you can't find something, you're going to reach for something. And that's where you're going to have problems.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“And basically, Salid, very, very good in originating. They create great structures in these annuities. But let's just say it's a 10-year annuity. And they say, all right, Brett, you have, you know, to get 6% for 10 years. And they say, here's a billion dollars of annuities. And I put up $100 million. Okay. And they say, all right, anything over 6%, you keep. So let's make the math easy and we'll say that billion dollars, I got to give them back $2 billion, right? I got to give them back $2 billion in 10 years. Well, I just put in all these trust preferreds. I put in all these other assets that I really, really like. And my net interest margin, let's just say, is four and a half.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Where's an insurance company do? So an insurance company, we'll call it with an annuity. An annuity is a savings account with a tax advantage. Because you had all of these people who had baby boomers had 401ks, and either have to cash out of your 401k or you can roll it into an annuity. And a lot of people buy annuities. They buy it for their mom. Here mom would buy something, take care of you. And basically we come in and we say, all right, we will reinsure this. So the person that originates it, we found somebody who's a very good originator and they didn't understand the assets and need a little help. And we came in and helped them, but we invested with him.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Fords, which have, you know, I was in Africa in June and you were in the Serengeti and I saw the migration, you know, the beginning of the migration. I called my partner Dushant and I said we're doing the trucks right now is the great troughs migration. We're migrating them right into the reinsurance company. And what we're getting is great funding on them. Non-mark to market funding for 10 years. These are going to be around anywhere, these trust preferred anywhere from eight to 15 years.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“CBO. So CBO. You got to look at that middle letter. So it's a collateralized bond obligation. The first deals that were put together were put together with high yield bonds back in call. Where we are now is we trade opportunistically structured products on an unlevered basis, buying residual tranches such as CLO equity or buying the tranche above it, the double B's where securitizing mortgages. So we buy non-QM mortgages from one of the largest non-bank or the largest non-bank originator cross-country mortgage. We buy their non-QM, we securitize it, we keep the residual trunk. So we're creating the securitization. But then we created a reinsurance company. And the beautiful thing about this is we're reinsuring fixed index annuities. There's a really big company out there called Apollo. They got this thing called Athene and it's $250 billion. And I'm telling you that I can find really good one-off opportunities. I can't find $250 billion with it. Because I find $10 to $15 billion of them. Well, I had a whole bunch of trust.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Let's be clear about this. We're buying structured products and we most of the people who buy structured products, a lot of them were insurance companies. Okay. We have started an insurance company. We have started a reinsurance company. And we'll get into that a little bit. But a lot of the people who are buying structured products on the mezzanine part of the capital structure, not the residual tranches. They were buying, they were putting them away. Then they have a problem and they have to get rid of them. Okay, I'm not going to knock them, but I don't think they're as sophisticated as we are. I don't think they break these products down like we do. You know, I've been working with these products since 1996, whether it's a structure or as one of the first traders of CBOs.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Right. And there are a lot of people who are paid a lot of money to try and determine which is a better investment Coca-Cola or Pepsi or Apple versus Microsoft. And there are not as many people who are buying the liabilities of trust preferred CDOs at pennies of the dollar. So I see what you're saying. You got to go where the inefficiency is. That's where the alpha is.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“And, you know, when you really look at different assets, the one that used to be the most inefficient were convertible bonds because you had two components. You had a bond and you had an option. That's not as inefficient market as it used to be. We like to traffic in things that have inefficiencies. People talk about finding inefficiencies. We are in an inefficient market. It is. Because if a market can move, okay, 98% lower and I can buy it and it can pay me off, then that's inefficient. And when you have a problem like you had in COVID, look at what asset class move the most. Look at what happened to the CLO market. Mortgage markets, things like that. I mean, these are still inefficient asset classes.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Look, look, I understand there's people out there who talk about efficient markets, right? They believe that markets are efficient. I believe that markets are not efficient. I believe that you can find inefficiencies, and I like to be an inefficient markets. Structured products, CLOs, trust-preferred CDOs, mortgage bonds that have a credit component, these are still inefficient because they have three things. They have value the assets, value the structure, value the option. And because you have those three different things and because they're small, unique, self-governed companies, which is kind of interesting, unique thing about these, you will have inefficiencies within this asset class. If you look at other asset classes, like how many equity sales traders are left? Really none because computers can do it better. High yield bond salesmen used to get paid a fortune because they had to move bonds. Now people, it's a whole different world.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“These deals did go bad. Don't get me wrong, there are failures in the banking street. What he was saying is the senior bonds, okay, the amount of losses that it would have taken to have a loss on the senior bonds to get losses up to the senior part of the capital structure, if you took that across all the different banks, you would have had probably $4,000 banks fail, okay? There were about 500 banks fail, okay?”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I don't think people used to talk about Russian bonds being the greatest trade of all time. You could have bought Russian bonds at five cents of the dollar. I bought hundreds, hundreds and hundreds of bonds, less than 10 cents of the dollar, that will pay off a par. Hundreds of less than 20 cents of the dollar. So that's really never happened before. So yeah, it's good. I'm by no means a, I'm no means a bank expert. I can tell you that because we're really in the death business. We're looking at these underlying banks and we're saying, you know, I don't really care what your stock does. Are you going to live or die? Are you going to live or die? Because that's it. Because if not, you're in the securitization. You're not getting out at a discount. And someday you're going to have to pay me off. And I had to go to court many times to make sure that that has been enforced.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Well, he was basically saying that none of the senior bonds were going to pay off par. I mean, he was basically saying there was going to be so many failures in the banking sector that none of the senior bonds were going to pay off at par. Now, I'm not disagreeing with him that, you know, look, should the trust prefer to ever been created? I don't know. That's not what I'm here to talk about. I'm here to talk about I bought something and I had a view that it was going to pay me a lot more than what I bought paid for. Now, we have had many, many deals and I could give you the exact name where all of the debt has been paid off, not just the A's, but all the way down to the D's, okay? And, you know, that's really the gist of it. He was saying there was going to be excessive losses in this asset class and this asset class, which not a lot of people follow or look at. And yeah, it's me and maybe two other people really look at it. But, you know, it's done exceptionally well because of where it was.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Anytime they want to sit down and talk about how their paper is one of the biggest bits of gibberish I've ever read, I'm happy to sell them that. I'm happy to tell that and prove that it is because we've done pretty well with these. And we haven't had a lot of banks fail recently.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Huge competitive advantage because we have broken 12 of these deals and then re-securitized them. Are going to pay poor or pretty close to par. And I know the gentlemen wrote the Philadelphia Fed paper back in 2011, and I challenged him 10 times to come and debate me about that paper. And I'm willing to show him my returns and willing to show my analysis. So somebody goes and writes a paper like that. What was his name again? I forget his name. I forget it. Writes a paper like that, and then.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, it's not an actively traded market because a lot of it, you know, we own. We own a lot of the mezzanine bonds, which we feel have very good optionality. When I say optionality, I'm going to just throw something conceptually out there for you. So these bonds can be auction called. Okay. So you can call these bonds. They were set up as a 30-year security. And after 10 years, they would have auction calls. So if you think about it, if when you have an auction call, you come in, you buy all the assets, but you have to pay off all the debt. But if I own, let's just say there's an A tranche, a B tranche, and I own all the B bonds. I own it with 60 cents on the dollar, right? And they're all in one pocket and all the bonds I'm going to go in. I'm going to buy all the assets from that securitization. All I have to do is make sure that my net charge is 61, right? Because I own them. I own them all. So by doing that, we have a huge...”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Where's the market trading now? And do you have the element of being pulled apart where you know you buy a 30 year zero coupon treasury bond, you buy it at 70 cents, but every month it goes up 70, 71 just because you're getting closer and closer to that date. And for this, it's not just the duration fact, but it's also the credit risk.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“They still exist because it's still an obligation. It's still a contractual obligation. Just you can't issue one of these and get the regulatory treatment that you did. You can issue banks, you can issue debt, and they're issuing sub-debt and sub-debt market is large, and most people who take out their trust preferred to do it with the sub-debt market. But you don't get that tier one capital treatment. We've done two sub-debt securitizations where we buy sub-debt and we securitize.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“This. It's cheap funding, and you're getting tier one capital treatment for it. Why would you want to do that? So they still are around, but they're not coming back anymore”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Big problems. So there's a lot less leverage now in the Moorish space. We like this asset class and I'm fine holding the debt of banks right now and watching this asset class as a to go. Now, trust preferred were regulated out, okay? It was something called the Collins Amendment. They basically said these trust preferred, these were bad. Never should have happened. Everyone has great hindsight. Trust preferred should have never happened. But what they did say is they said small banks can have because we don't want them to be forced to go out and raise capital right now. So if you're less than $15 billion, which is a lot of this universe, okay, you are grandfathered on your trust preferred. So that means that we still have a lot of assets left, but it also allows us to really understand the callability, what's going to happen. And we think that a lot of these banks are going to get out of these five years before starting five years before the maturity. Because why would you want to get rid of it?”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, he got grounded. Okay. Here are the new rules. So banks now are highly regulated. Hence, why do you have such a large private credit market? Because banks can't lend. So banks can't lend. So now I own debt of banks, which did bad stuff, you know, pre-2008 and can't do anything. Now, I'm not buying their equity, so I don't know if their equity is going to go up that much, but I feel pretty good about the debt or the bank. We also buy non-tort mortgages. These are not subprime mortgages. These are for non-qualified buyers, people who are self-employed, maybe a second home. They are 70 loan value. If you have gotten a mortgage lately or you know anyone who's gotten a mortgage, ask them how many different forms, how many different appraisals, how many different things they have to do to get a mortgage. It is not just signing up and making sure you have a heartbeat. Now you're only to give you money. Okay. It is much different. And if you lie on your mortgage application, you have...”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Is most of the time when banks fail, there's not much left over. And yeah, there was a lot of bad things that were going on in pre-2008. But where we are now is, so we're focused on a couple different asset class, but two that we're really focused on are ones where you can say when you have the biggest problem in the mortgage space in the history of money and you have the biggest problem in the banking space in the history of money, these two asset classes are going to be regulated. It's like I was explaining it to my niece. She went to college. I go, this is like, remember that project X, that movie Project X, that kid?”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“You gotta call it a, you know, a big bank like Citigroup. So Citigroup has deposits. Okay. Then they may have subordinated debt, which is issued from the bank. And then they have a holding company. And the holding company, they may issue preferred stock. Okay. And then they may issue trust preferred firms, trust preferred would have been seniors of the preferred stock. Okay, so preferred stock is counted as equity. Okay, and that's tier two capital. But your subordinated debt would have been senior to the trust preferred. Most of these banks that went in here were private banks or what we'll call quasi-private, meaning they may have been public, but the stock just didn't trade. And they had deposits and they had equity and they had then they issued a trust deferred. And these trust preferred didn't trade anywhere. They were just in these deals. And it's senior to the equity. So yes, it is senior to the equity. If they had preferred stock, it would be senior to them.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“And so let's talk about the underlying assets that are in the structure. They are bank loans that are senior to equity but junior to other stuff. And basically their financial health. And whether they're getting paid depends upon the health of the underlying banks, most probably regional banks.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Companies that they have all kinds of different capital levels they have to hold against it, they're ratings type buyers. With the equity a lot of times or with some of the much lower bonds, people wanted to take a tax loss. So if you basically have a bond that you bought for $100 and somebody's saying, I'll pay you two cents on the dollar for it, you can write it down to two cents in the dollar, but you can't take a loss unless you sell it, right? So people are like, well, for tax reasons, I think this thing's worthless. Why don't I sell it and take a 98 cent write down, which is good for taxes. It's a tax write-off. And there was a lot of that. There was definitely a lot of that.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Okay, and I was buying bees cheap. And then when the bees got up, then I was buying C's. Then I was buying D's. And every once in a while, somebody would come and they'd say, like, I've got some equity for sale. And, you know, they'd say, I'll pay you $5,000 per million. They'd be like, okay, that's a good option. And, you know, when you're doing this, a lot of times you're realizing that either the holder of this can't hold it. So if you're a bank and all of a sudden that was a, you know, second priority B bond was an A-rated bond and now it's a single B bond. They can't hold that. They have to get rid of it.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“I wasn't buying a senior, so think about it just before they usually were like an A1 and an A2, which were rated AAA, those were sold usually into the NEG basis back in 2008. So they were sold and funded in either a derivative form or sold to.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“You pay your A notes, okay? And then all the excess spread, all the excess interest that's left over goes to pay down the A notes. So it's called a waterfall. Comes down, fails that test, goes and pays it down. Well, if you're failing that test for 15 years, okay, you're building up a lot of value. And that's why this is, you know, we were playing the long game with this, because we were buying these things so cheap. And now we found a great place for them.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Every CDO has something called an overchiralization test. And it's basically measured by the amount of performing assets divided by the debt. And you have a senior test. And if you have support, like if you have five different tranches in a CLO, you might have five different cover chefs. Let's make it easy and we'll say we have one test. Okay. So we have an A bond, a B bond in equity. And that senior test was originally struck at 120. Okay, so you needed to have 1.2 times of overcollateralization or else you're breaching that test. And let's just say within the world of the banks that were in here, 25% failed. Okay, so 25% failed. And you went down to, so you started, you know, let's just say at 145 and you went down to 120. But then you had 15% deferred. You write those down. So now you're now you're in the hole. You're 105. And as you breach that test.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“So the liabilities You bought that, let's just say you bought a liability at 10 cents and the payments into that pool were deferred. Why? Because it broke some type of coverage ratio. Tell us about that and explain why it matters.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“30 years. They're going to trap cash for 20 to 25 years. So that value that's in the system is hugely valuable, hugely valuable. And that's unlike any other structured products trade that's ever occurred.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“And one of the important things to note about structured products is that as you breach your coverage test, okay, so you breach a test and you trap all the interest. So think of that as you have two companies. You have one company that is going to pay a dividend and you have one company that's going to retain all of its money and pay down instead. Okay, so those are two companies. And the second one is a trust preferred that is breaching its coverage test, meaning you're breaching that lowest coverage test every single excess dollar is going to pay down excess spread. And a CLO is, we'll call it a seven-year instrument. So if you start to have problems after three or four years, you're trapping that cash for, let's just say, four more years. Okay. Trust preferred started to have problems. We'll call it five years after existence. They're going to stay around a lot of them for.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“So you paid one cent. You paid 1% of 100, and it maybe owed you 10 points of back due interest, didn't pay you for four years, so you picked up, call it 20 more points of back due interest. And then the bond's been called away. I bought residual tranches for $5,000 that have paid me $30,000, $40 on the dollar. So $5,000 per million. So, you know, and it's not just one or two hundreds. I didn't buy them all there. You know, I was buying them for cents. And then I was buying them in the teens. And then I was buying them in the 20s. And now we buy them in the 70s because they're going to pay off.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“No, there's no index, even though I used to joke that there was a Trump's index. And of course, I was the one who had it. You know, look, I bought, depending on the deal, I bought bonds for. One cent on the dollar, and I bought bonds for one cent on the dollar that have paid off all interest and principle.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“Was much less than what was being shown because of the way that they were accounting for these. The bonds started to pick, meaning you breach a coverage test in a CDO, you stop paying interest. Yes, I'm not saying that the way trust prefers were sold and sold to small banks was a smart thing to do. That was not what I hear. That's not what I do. I'm here to find good opportunities. So as they started to come out in small bike sizes, two million dollar pieces, and I'm buying, we have at less than 10 cents on the dollar B notes second priority notes, you know, I was looking at these and saying my downside is if I just paid seven, seven, my upside is I get parr and all my money back. And those are pretty good odds. And I took those odds.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT
“It's kind of funny when do you start a firm? So you decide you're going to start a firm, there's a lot of things you got to do. We actually incorporate it or filled out our documents in 2007, sort of went out and I was the first investor and then started to buy things in May of 2008. And for the first six months, I was finding different types of securities and I was looking at mortgages. I was looking at CLOs. But then I started really buying trust preferred CDOs probably the first one was in the later part of 2008. And I think the bigger part of it was that there had been so many write-downs, when you say write downs, you know, because of the accounting in the CDO, because of the deferrals and because of the defaults. And look, I'm not saying that there weren't problems in the banking sector. There absolutely were. What I'm saying is that I was investing in an asset class where the perceived amount of loss.”
2024-09-12 · Forward Guidance · CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics · IDENTIFIED FROM THE TRANSCRIPT