GE Capital Marking Loans Above Fair Market Value

Zero Hedge has a good post about GE Capital Marking Loans Above Fair Market Value.

What's the Matter With GE?

Every time I turn around I hear about GE Capital making a bad loan.

GECC is a new owner of the Minneapolis Star Tribune, thanks to a bad loan and a debt-for-equity swap.

Tuesday Reading

Puts are on sale: current implied volatility vs. the 52 week high IV of Dow 30. I have accumulated almost a thousand GE put contracts so I'll never have to work again if we get the next leg down.

Conservative Woodstock Rocks the Capital.

"Every week the FDIC takes over failed banks and every week the assets on the banks balance sheets are written down by 30% overnight. Does this not make eager buyers of bank stocks wonder how assets on bank's balance sheets are being valued?" (Capital Observer)

Why do people say the government "let" Lehman fail? Lehman was a mess. It failed. It's requiring "the biggest real-estate workout department in the U.S." just to oversee the real estate screwups they made.

Geithner cancels Westchester house listing, rents to tenants. Cap rate is around 4% based on his asking price for the house.

Short Interest At Lowest Level Since February 2007

Short Sale Candidates

As part of a great conversation in the comments over at The Sovereign Speculator, I prepared a list of short-sale candidates meeting the following criteria:

Total assets > 50 * tangible book
EBITDA(ttm) / EV yield less than 5%
Debt > 3 * market cap
Interest coverage ratio MRQ < 1.5

Here is the list, ranked from lowest interest coverage ratio to highest:

HW
F
OWW
SBGI
GBX
MTLQQ *this can’t be shorted
ETFC
CAL
AMR
CEA
AXL
LNG
MIC
MHGC
LCC
MVGR
DAL
CVO
RAD
URI
GE
ABD
UAUA
BLC
MTW
MEG

Every major airline is on the list!

Is GE a Zero?

From the WSJ:

To meet investor demand for more details about GE Capital, managers held an investor day Thursday, during which they gave out much new, and welcome, information about the unit's $637 billion of assets. One detail: Large amounts of GE Capital's loans are to borrowers with junk, or sub-investment-grade, ratings.

For instance, 81% of the $55 billion of equipment leases in the Americas is to borrowers below investment grade, and 40% are rated B+ or lower. On the $38 billion leveraged loan book, 76% of the borrowers are rated below B+, and 28% are below B-.

For instance, management is expecting $333 million of credit losses on its leveraged loans in 2009 -- less than 1% of the total amount. The unit aims to have reserves at 1.2% of the book this year.

GE Capital's consumer portfolio also contains a lot of loans to lower-grade borrowers. The company said 58% of its $183 billion in consumer loans were to prime borrowers, implying a sizable 42% were to non-prime borrowers.

Bearish News

Layoff Lawyer Sees Ominous Signs. Three million job losses in Q1 2009?

State and local sales tax receipts have been crushed.

GE is highly leveraged.