heth247 Posted March 28, 2012 Share Posted March 28, 2012 Plan, The author of that article valued the $54MM CDO notes held at corporate at zero because they think it may be retired in the future to protect the OC test. What do you think of it? thanks. Link to comment Share on other sites More sharing options...
PlanMaestro Posted March 28, 2012 Author Share Posted March 28, 2012 The author of that article valued the $54MM CDO notes held at corporate at zero because they think it may be retired in the future to protect the OC test. What do you think of it? thanks. That they provide a great margin of safety for CDO 2006 in particular. It is becoming very difficult for me to think of scenarios where CDO 2006 does not cash flow to the Parent. If things continue to improve on the CRE front, those bonds may be not be necessary to retire while providing upside. Link to comment Share on other sites More sharing options...
heth247 Posted March 28, 2012 Share Posted March 28, 2012 Thanks, Plan. Look forward to "Part 7" of your GKK write up! :-) Link to comment Share on other sites More sharing options...
PlanMaestro Posted April 3, 2012 Author Share Posted April 3, 2012 Management fee to be received from KBS, increases from 10M to 12M per year, plus incentive fees. http://ir.gramercycapitalcorp.com/secfiling.cfm?filingid=1144204-12-19794 Link to comment Share on other sites More sharing options...
heth247 Posted April 3, 2012 Share Posted April 3, 2012 Cheers! This again shows that management is actively creating value for us, although they don't like to communicate. Do you know if 2005 passed OC test at the end of March, Plan? Link to comment Share on other sites More sharing options...
PlanMaestro Posted April 4, 2012 Author Share Posted April 4, 2012 Do you know if 2005 passed OC test at the end of March, Plan? No Heth. Link to comment Share on other sites More sharing options...
heth247 Posted April 4, 2012 Share Posted April 4, 2012 Thanks, plan, let's hope they will make it pass at the end of April, which is more important. Link to comment Share on other sites More sharing options...
PlanMaestro Posted April 8, 2012 Author Share Posted April 8, 2012 New management contract with KBS includes new clauses for reimbursements of personnel expenses (Yippee!) and specifically provides permission to sell or merge Gramercy (but not the management contract). Link to comment Share on other sites More sharing options...
paologorgo Posted April 9, 2012 Share Posted April 9, 2012 Good review of the recent results. I might prepare something too. http://seekingalpha.com/article/461671-gramercy-capital-corporation-an-edward-de-bono-stock?source=email_rt_article&ifp=0 thanks, looking forward to your commentary. Link to comment Share on other sites More sharing options...
BargainValueHunter Posted May 3, 2012 Share Posted May 3, 2012 http://www.marketwatch.com/story/fitch-downgrades-4-and-affirms-11-classes-of-gramercy-real-estate-cdo-2007-1-2012-05-02 NEW YORK, May 02, 2012 Fitch Ratings has downgraded four classes and affirmed 11 classes of Gramercy Real Estate CDO 2007-1 Ltd./LLC (Gramercy 2007-1), reflecting an increase in Fitch's base case loss expectation to 39.3% from 29.8% at last rating action. This increase is primarily due to the negative credit migration of the underlying commercial mortgage backed security (CMBS) bonds. A detailed list of rating actions follows at the end of this release. Since the last rating action in May 2011, approximately 39.2% of the underlying CMBS collateral has been downgraded. This has caused the average Fitch derived rating for the collateral to decline to 'B/B-' from 'B+/B'. As of the March 2012 trustee report, 63.1% of the CMBS collateral has a Fitch derived rating in the 'CCC' category and below, compared to 17.5% at the last rating action. Over this period, the class A-1 notes have received approximately $11.7 million in paydowns from both principal amortization and interest diversion due to the failure of the coverage tests. Under Fitch's methodology, approximately 52.3% of the portfolio is modeled to default in the base case stress scenario, defined as the 'B' stress. Fitch estimates that average recoveries will be 24.9% reflecting low recovery expectations upon default of the CMBS tranches and non-senior real estate loans. Link to comment Share on other sites More sharing options...
PlanMaestro Posted May 3, 2012 Author Share Posted May 3, 2012 http://www.marketwatch.com/story/fitch-downgrades-4-and-affirms-11-classes-of-gramercy-real-estate-cdo-2007-1-2012-05-02 Yep, CDO 2007 is a dead parrot. Link to comment Share on other sites More sharing options...
heth247 Posted May 3, 2012 Share Posted May 3, 2012 Plan, when will the critical April CDO report come out? Link to comment Share on other sites More sharing options...
BargainValueHunter Posted May 8, 2012 Share Posted May 8, 2012 http://seekingalpha.com/news-article/2757681-gramercy-capital-corp-reports-first-quarter-2012-financial-results For the quarter, generated funds from operations, or FFO, of negative $(13.80) million, a decrease of $38.1 million from FFO of $24.3 million generated in the same quarter of the previous year. On a fully diluted per common share basis, FFO was negative $(0.27) for the first quarter of 2012 as compared to FFO of $0.48 in the same quarter of the previous year. For the quarter, net loss to common stockholders was $(2.1) million, or $(0.04) per diluted common share, as compared to the net income of $5.0 million, or $0.10 per diluted common share, for the same quarter of the previous year. The decrease in FFO and net loss to common stockholders for the quarter was primarily attributable to other-than-temporary impairments of $21.1 million related to commercial mortgage-backed securities, or CMBS, held by our collateralized debt obligations, or CDOs. Increased unrestricted corporate cash to $186.3 million at quarter end, as compared to approximately $163.7 million reported in the prior quarter. In addition, as of March 31, 2012, the Company holds an aggregate of $49.2 million of par value Class A-1, A-2 and B securities previously issued by the Companys CDOs that are available for re-issuance. The fair value of the repurchased CDO bonds was approximately $39.3 million as of March 31, 2012. Link to comment Share on other sites More sharing options...
PlanMaestro Posted May 9, 2012 Author Share Posted May 9, 2012 10Q: http://www.sec.gov/Archives/edgar/data/1287701/000114420412026857/v311140_10q.htm Good boring results, let's hope they keep them this way: * Unrestricted Cash increased substantially to $186 million * Cash from Operations $10.7 million * Both CDOs passing their tests * $49.2 million in CDO bonds to handle OC tests deficiencies * No repurchase of CDO bonds this Q Link to comment Share on other sites More sharing options...
Olmsted Posted May 9, 2012 Share Posted May 9, 2012 Back-of-the-envelope it looks like the market cap is just covered by the cash and CDO bonds, netting out the preferreds' liquidation preference and arrears. No credit given to REO, future cashflows, CDO equity, etc. And it seems clear from the ongoing REO sales that they are worth more than their mortgages. A concern: the language in the section "Collateralized Debt Obligations" seems to have gotten more specific regarding the failure of CDOs 2005 and 2006. Contrast the relevant sentence in the 10Q to the one in the 10K: 10Q, p32: "The Company’s 2005 CDO failed its overcollateralization test at the October 2011, April 2011 and January 2011 distribution dates and the Company’s 2007 CDO failed its overcollateralization test beginning with the November 2009 distribution date. The Company may fail the overcollaterization test for the 2005 CDO and/or the 2006 CDO 2006 at the July 2012 distribution date." 10K, p87: "Our 2005 CDO failed its overcollateralization test at the October 2011, April 2011 and January 2011 distribution dates and our 2007 CDO failed its overcollateralization test beginning with the November 2009 distribution date. We cannot be certain that the CDO tests will continue to be satisfied and that we will continue to receive cash flows relating to our CDOs in the future. If the cash flow from our 2005 CDO and our 2006 CDO is redirected, our business, financial condition and results of operations would be materially and adversely affected." Thoughts? Link to comment Share on other sites More sharing options...
PlanMaestro Posted May 9, 2012 Author Share Posted May 9, 2012 As I told someone that asked me about that paragraph: there is always the chance that the CDOs may relapse since the OC tests margins are thin. At the same time they have showed they have tools to cure them ... $49 million CDO bonds that can be retired for a start. Link to comment Share on other sites More sharing options...
Olmsted Posted May 9, 2012 Share Posted May 9, 2012 Agreed and understood, just trying to get my head around the reason for the change in language... Perhaps just reading too much into it. Link to comment Share on other sites More sharing options...
Hielko Posted May 9, 2012 Share Posted May 9, 2012 As I told someone that asked me about that paragraph: there is always the chance that the CDOs may relapse since the OC tests margins are thin. At the same time they have showed they have tools to cure them ... $49 million CDO bonds that can be retired for a start. Plan, how much value is there for GKK in the OC itself? I assume that GKK owns the OC if any is left when the CDO's are liquidated, and second part of the question: when are these liquidated? They are not in the reinvestment period anymore right? So slowly principal should be repaid to note holders, and the required amount of OC should also be dropping? I've looked GKK in the past, but was never able to get the full picture... also sucks that don't publish information on the CDO's on their website Link to comment Share on other sites More sharing options...
PlanMaestro Posted May 9, 2012 Author Share Posted May 9, 2012 Plan, how much value is there for GKK in the OC itself? I assume that GKK owns the OC if any is left when the CDO's are liquidated, and second part of the question: when are these liquidated? They are not in the reinvestment period anymore right? So slowly principal should be repaid to note holders, and the required amount of OC should also be dropping? With the deleveraging the OC absolute value has been decreasing. At the same time, the REO within the CDOS, that is priced probably at or below market, that is not generating interests at the moment, becomes a wild card LT when prices recover. The NIM has been under pressure but more because of recent loses in court (ie: Jameson Inn) and foreclosures than the deleveraging itself. The CDOs are more in runoff than a liquidation, as you say paying principal with loans repayments, but even that is not entirely true. Non performing loans/securities can be exchange for other loans/securities at the Parent (replacement strategy) extending the life of the CDO and that we want. At the current rates it is practically free money at libor + 0.7/0.8%. That partially explains the good cash flow coming out of them despite all the CDOs issues. But remember, the key to this investment is the downside protection provided by the assets at the parent ($186m in cash, $49m par in CDO bonds, several encumbered branches, offices, land properties, and a hotel) since the CDOs are non-recourse to it. I've looked GKK in the past, but was never able to get the full picture... also sucks that don't publish information on the CDO's on their website The information has improved substantially. All the properties owned at the Parent are disclosed at the of the 10K, I think that even the REO inside the CDOs is disclosed. Also the type of loans and interest yields are also disclosed. The key to understanding this is that most of the CMBS are inside CDO 2007 (the one dead), so CDOs 2005 and 2006 are mostly loans, and the quality has increased a lot ... mostly whole loans where they can control the bankruptcy process and get control of the property if needed. Link to comment Share on other sites More sharing options...
Hielko Posted May 9, 2012 Share Posted May 9, 2012 Thanks for your reply, maybe I should give valueing GKK another try. What's your take on management? If I remember correctly they own very little of the company so they might have more incentive to grow the company/dilute existing share holders (something like this happend at NCT I think), so in that case it might make sense to go for the prefs instead of the common, but that limits your upside and given the history so far I would guess that you need a lot of patience before you get paid. Link to comment Share on other sites More sharing options...
heth247 Posted May 9, 2012 Share Posted May 9, 2012 Plan, What do you think of the IC compliance margin drop from 12/31 to 3/31, brought up by someone on Yahoo msg board? Is it just due to the Jameson Inn forclosure? The amount of non-performing loan ($51MM) remain about the end of these two period. I assume that they have already been written off when compute the OC test? thanks. Link to comment Share on other sites More sharing options...
PlanMaestro Posted May 9, 2012 Author Share Posted May 9, 2012 Plan, What do you think of the IC compliance margin drop from 12/31 to 3/31, brought up by someone on Yahoo msg board? Is it just due to the Jameson Inn forclosure? The amount of non-performing loan ($51MM) remain about the end of these two period. I assume that they have already been written off when compute the OC test? thanks. GAAP is different than the OC test. Jameson was not included for OC but was already reserved for GAAP. Regarding IC, I think I already mention the issue in the discussion of net interest margin in previous answer. Link to comment Share on other sites More sharing options...
heth247 Posted May 9, 2012 Share Posted May 9, 2012 GAAP is different than the OC test. Jameson was not included for OC but was already reserved for GAAP. Regarding IC, I think I already mention the issue in the discussion of net interest margin in previous answer. Plan, so as long as it is whole loan, we can control the property and hence keep the icash flow (interest payment) and wait out for the price recovery in the future. However, it will still require some effort to fix the OC test, because those REO property will be carried at a low value, right? But for mezzanine and preferred equity, we have no choice but to write them off. So our main down risk interms of write-offs are the $23,796 + $6,349 in below, right? "At March 31, 2012, the Company had one whole loan with a carrying value of $51,417, which was classified as a nonperforming loan. At March 31, 2012, two whole loans with an aggregate carrying value of $39,555, two mezzanine loans with an aggregate carrying value of $23,796 and three preferred equity investments with an aggregate carrying value of $6,349 were classified as sub-performing." Link to comment Share on other sites More sharing options...
PlanMaestro Posted May 9, 2012 Author Share Posted May 9, 2012 Plan, so as long as it is whole loan, we can control the property and hence keep the icash flow (interest payment) and wait out for the price recovery in the future. However, it will still require some effort to fix the OC test, because those REO property will be carried at a low value, right? But for mezzanine and preferred equity, we have no choice but to write them off. So our main down risk interms of write-offs are the $23,796 + $6,349 in below, right? 1. Yes but I would love Gramercy to take control of properties at cheap prices, like the Ontario office building that they just sold for a profit. 2. Probably, but those are GAAP carrying values. Not sure about the OC test value of the mezz loans. We can still fight with a mezz loan, it is more messy though. And both dynamics might explain why they do not pay the prefs yet with so much cash. (1) to cure the CDO after taking control of the property and (2) to be involved in any recap of the property. Link to comment Share on other sites More sharing options...
heth247 Posted May 9, 2012 Share Posted May 9, 2012 And both dynamics might explain why they do not pay the prefs yet with so much cash. (1) to cure the CDO after taking control of the property and (2) to be involved in any recap of the property. Really? will it take that much of cash to cure CDO? I mean $183MM is much more than $25MM they owed in prefs divi. When you say "be involved in recap of the property", do you mean that GKK lend out their unrestricted cash in bridge loan/mezz loan? How much return can they get for that? Link to comment Share on other sites More sharing options...
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