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We construct an index of the intensity of outside monitoring based on three variables: subordinated debt rating, non performing loan ratio and examination rating assigned by regulators.
A covered bond has several characteristics that protect the bondholder: The assets in the cover pool are subjected to monthly monitoring by an independent third party, and should one of the loans become nonperforming, the issuer is obligated to remove it and replace it with a performing loan.
So suppose I am wrong and it is not a performing loan–I become one of the largest shareholders of a well-capitalized insurance company after it's restructured.
Bankers would find this counterintuitive; how can a non-bank have a better performing loan book than a bank?
Adam Levitin, a professor at Georgetown Law School and Twomey with the National Consumer Law Center, concluded in a recent article published by the Yale Journal of Regulation that a loan kept in default for a year or two can prove more profitable to a servicer than a typical healthy, performing loan.
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The €200 million portfolio comprised about 900 performing loans.
"We're talking about performing loans — that's the rub," said Thomas J. Bisacquino, the president of the National Association of Industrial and Office Properties.
"Investors rate servicers based on their ability to keep loans in a performing state and to turn nonperforming loans into performing loans," he said.
But in that case, taxpayers might well be the losers: They would have all of the banks' worst assets and none of their performing loans.
The fund also has benefited from performing loans that Mr. Whitman bought in the first quarter of 2009, when they had yields to maturity of 25percentt or more.
In a first move, GE will sell most of its GE Capital Real Estate to funds managed by Blackstone, and Wells Fargo will buy a portion of the performing loans at closing.
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