Holy Cow, Lots Going On

Some links:

Here’s a scathing review of S&P’s conduct, generally:

To say that S&P analysts aren’t the sharpest tools in the drawer is a massive understatement.

Naturally, before meeting with a rating agency, we would plan out our arguments — you want to make sure you’re making your strongest arguments, that everyone is on the same page about the deal’s positive attributes, etc. With S&P, it got to the point where we were constantly saying, “that’s a good point, but is S&P smart enough to understand that argument?” I kid you not, that was a hard-constraint in our game-plan. With Moody’s and Fitch, we at least were able to assume that the analysts on our deals would have a minimum level of financial competence.

Yikes. And imagine what the real regulators are like.

As for S&P’s downgrade, here’s Sumner’s take, under the title of 1.07% on the 5-year and falling fast.

The markets this morning gave a massive vote of no confidence to S&P ratings service, as yields plunged on Treasuries.

The real after-tax rate of return on the 30 year Treasury is now negative, assuming a 30% MTR.  That means the tax rate on capital now exceeds 100% in real terms over the next thirty years, which doesn’t seem particularly conducive to capital formation.


But what’s the ultimate signal that things are bad? Berkshire’s getting the itch.

Here’s Ajit swooping in and demolishing the incumbent bidders’ stock/cash offers with an all-cash, thank-you-very-much email.

Mr. Robert Orlich
President & CEO
Transatlantic Holdings, Inc.
80 Pine Street
New York, NY 10005

Dear Bob:

As you can imagine, subsequent to our telephone conversation yesterday, I have been watching the screen all morning. With your stock trading at $45.83, I have to believe that you will find our offer to buy all of Transatlantic shares outstanding at $52.00 per share to be an attractive offer. As such, I am now writing to formally inform you of National Indemnity’s commitment to do so at $52.00 per share under customary terms for a stock purchase agreement of a publicly traded company to be agreed (but not subject to any due diligence review or financing condition of any nature [emphasis DW’s]). This commitment is subject to:

  • A formal response from you no later than the close of business, Monday, August 8, 2011.
  • Should you decide to accept this offer, your agreement that should the deal not close for any reasons that are under your control by December 31, 2011, a break-up fee of $75.0 million would be paid to us.
  • Your commitment that until the deal closes, you will continue to manage the affairs of the company in a manner that is consistent with how you have managed it historically.

I have deliberately tried to be brief and to the point. I will be happy to discuss any details that you would like at your convenience. I can be reached at [number withheld] (work), [number withheld] (cell) or [number withheld] (home).


Ajit Jain

TRC probably figured there wasn’t any point in summarizing the offer and just published it in whole online. Also gives us our “parenthetical statement of the day”.

Note that this values TRC’s stock at something close to the incumbents’ bids BUT the value of the stock portions of the bids have diminished substantially since they were made.

Timing is everything, n’est-ce pas?


Here’s a neat post speculating on who got the margin call today:

You see the desperate selling of the biggest liquid names is a sign of margin calls.

The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds.

So lets play the game: guess who got the margin call!

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