Will they roll over the bonds?
From BBG…. ~~ Aug. 20 (Bloomberg) — Fannie Mae and Freddie Mac’s success in repaying $223 billion of bonds due by the end of the quarter may determine whether they can avoid a federal bailout.
Fannie, based in Washington, has about $120 billion of debt maturing through Sept. 30, while McLean, Virginia-based Freddie has $103 billion, according to figures provided by the government-chartered companies and data compiled by Bloomberg.
Rising borrowing costs and evidence that demand for their debt was waning last month led Treasury Secretary Henry Paulson to seek the authority to pump unlimited amounts of capital in Fannie and Freddie in an emergency. Freddie paid its highest yields on record in a debt sale yesterday amid concern that credit losses are depleting the capital of the beleaguered mortgage-finance companies. Shares of Fannie and Freddie tumbled to the lowest since at least 1991, a sign that stockholders view a bailout as increasingly likely.
Rolling over the debt “is the single most important factor to their ability to remain liquid,” said Moshe Orenbuch, an analyst at Credit Suisse in New York. “So far, they’ve been able to do that.” ~~
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‘Litmus Test’
Most central banks and foreign investors fully expect the U.S. government to stand behind Fannie and Freddie’s debt obligations. But many are already holding significant amounts of the companies’ debt and are unwilling to add to their positions at a time of uncertainty.
“The worry is not that they won’t get their money back, but that negative headlines will continue and it will be hard for them to explain why they are adding to their positions at this time,” says Ajay Rajadhyaksha, head of U.S. fixed-income research at Barclays.
Some analysts think Treasury needs to act faster to put its plan into action by injecting fresh capital into Fannie and Freddie as soon as possible.
Freddie’s auction was a “litmus test of support from Asian investors,” said Michael Cheah, a bond-fund manager at AIG SunAmerica Asset Management in Jersey City, N.J. “The market dodged the bullet today, but from now on, every…auction is going to be a cliffhanger,” he added.
Freddie officials were upbeat about the sale. “We are pleased with how it went down,” a spokeswoman said. “It was a large offering, and that it was oversubscribed points to the fact that our liquidity position and access to the world’s capital markets remains very strong.”
She noted that spreads on the debt of many other financial companies have been widening in recent weeks, and that August is typically a slow month for the markets in Asia.
http://online.wsj.com/article/SB121919008026355015.html
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