Wednesday, 3 April 2013

Opening day . . . anyone need car parking?

Yesterday was opening day for another US baseball season, it was also the day that Bronx Parking Development Corp, the operator of parking garages at New York’s Yankee Stadium missed a $6.9 million interest payment to bondholders. Bronx Parking had issued $237.6 million of municipal bonds in 2007 through New York City’s Industrial Development Agency to build three garages and renovate two others at Yankee Stadium to ensure the storied franchise remained in it's current home. It was the the first time Bronx Parking Development Corp. has skipped a payment to investors, and the next scheduled one is for $8.1 million on Oct. 1. It would seem that parking hasn't been the no-brainer one normally associates with NYC and the company has hired Willkie Farr & Gallagher to serve as bankruptcy counsel. What are we to make of this? Well clearly the company was over leveraged and secondly bond traders will now be trolling through various prospectuses issued through New York City’s Industrial Development Agency to ascertain any inter-conectivity of obligations (unlikely) or more importantly the degree to which the Agency is responsible for any misleading statements etc. I don't trade "Muni's" but this will send shock waves through the market not because of the size of the payment missed or because the underlying assets won't cover the capital involved, but rather because we're still in the midst of a bond bubble looking for an excuse to burst.

I said yesterday I had faith in the US housing market because of all the cash the Fed had pumped in via the various iterations of QE. The key to this has been the recent purchases of mortgage backed securities (MBS) which has allowed issuers to source funds by taking advantage of the "put option" that has resulted from QE. More evidence of this today when Fannie Mae reported that it earned a record net income of $17.2bn in 2012. Additionally fewer households fell behind on their mortgage payments during 2012 and the delinquency rate was down to 3.3% by the end of the year compared with 5.5% in March 2010. Thats a big turnaround suggesting to me that the Fed must be coming closer to at least slowing the rate of asset (e.g. MBS) purchases. The trick now is to balance the Muni sector with the MBS sector so as to create a path to normalcy. I remain somewhat sceptical as to a smooth exit and believe we have at least one more US shock in the offing.

My M&A belief waxes and wanes, but I like to see companies such as Dish Network Corp. (DISH), the third-largest U.S. pay-TV provider raising new funds for possible acquisitions. Yesterday they said they's raise $1 billion in debt "for purposes that may include wireless transactions or acquisitions of airwaves."Dish made an offer to buy all of Clearwire Corp. (CLWR)’s outstanding shares for $3.30 back in early January as part of its' wireless strategy. Sprint Nextel Corp. (S) also got involved offering $2.97 a share. It's unclear what will become of that battle but I'm betting that even if Dish fails to secure all of Clearwire they get some spectrum or take their business elsewhere and buy part or all of another wireless operator. Either way M&A is happening in Telco and that should help markets.

M&A cheer has yet to get to Europe, in fact today Verizon denied that it’s considering a bid for Vodafone, disputing a report that said it was discussing a plan with AT&T Inc. to make a joint offer for the U.K. carrier. Seeing Vodafone as a target would certainly bring a smile to my face as I can still remember the company's swashbuckling run of acquisitions in the 90's culminating in a number of high profile questionable moves such as buying Mannesman in Germany. Who knows what could happen in this space, but if I were an M&A banker I'd make sure I had regulators on side because as we've seen in recent history the EU is not very transaction friendly and will use any excuse to come down hard on exterior corporations looking for a foothold in the "zone".

Rain is falling here in Sydney, so my bikes are likely to get another day off the road. Yesterday I took the opportunity to head down to the LBS to grab some new lube and some cleaning liquid for the workshop. The shop was short on cleaners and offered me a cleaning pack containing frame cleaner and degreaser. The cost: AUD39! I use a degreaser I get from my local mega DIY store which is about 6 bucks for 4 litres when on special, so I had no interest in this arrangement and took the lube and some frame shine only. Australia is a bit like this, retail remains somewhat under pressure from the internet, but not so much that it passes on more competitive prices. I know the same cleaner pack is £14.99 on the net. I'm sure the shop would point to their rent, plant and equipment, but while I'm willing to pay for some of that I expect a certain value add and acknowledgement that I'm not a complete chump unable to use a computer. Leaving this aside I highly recommend Juice Lubes Frame Juice for after wash shinning. It leaves your frame with a non stick surface that dirt finds it a lot harder to stick to. Check it out:


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