New Hitches In Markets
May Widen Credit Woes
By LIZ RAPPAPORT, CARRICK MOLLENKAMP and KAREN RICHARDSON
Wall Street Journal, February 11, 2008; Page A1
A widening array of financial-market problems threatens to trigger a new
phase in the global credit crunch, extending it beyond the risky mortgages
that have cost banks and investors more than $100 billion in losses and
helped push the U.S. economy toward recession.
In the past few days, low-rated corporate loans -- the kind that fueled the
buyout boom of recent years -- have plummeted in value. As a result, banks
are expected to try to unload some of those loans this week at fire-sale
prices.
Nervous buyers also have retreated in recent days from the market for
securities backed by student loans and municipal bonds, roiling some corners
of the short-term money markets. Similarly, investors have recoiled from
debt backed by commercial real estate, such as office buildings.
Over the weekend, the world's top banking authorities warned that the
U.S.-led economic slowdown and continued uncertainty about securities could
lead banks to further reduce their lending, and choke off economic activity.
(Please see related article.)
One sign of investors' anxiety: Standard & Poor's said its index of the
prices on high-risk corporate loans fell to a record low of 86.28 cents on
the dollar at the end of last week.
Few market participants expect defaults on any of this debt to match the
elevated levels seen in last year's rout in the market for risky, or
subprime, mortgages. But collectively, they threaten to deepen the financial
system's wounds and create a growing pileup of shaky assets on the books of
banks.
Behind the latest problems are some common themes: Investors bought some of
these debt securities with borrowed money, or leverage. As prices have
declined, lenders have forced the sale of some of these securities. The cash
being pulled out of the market by these sales has magnified the losses from
rising defaults.
Meanwhile, the Federal Reserve's interest-rate cuts, which were designed to
reinvigorate the slowing U.S. economy, may be having unintended consequences
in some quarters: sending investors fleeing from investments that do poorly
when interest rates fall.
After years in which banks and investors have lent money on especially easy
terms, "You've had the biggest credit bubble -- probably the biggest credit
bubble we have ever had," says Jim Reid, credit strategist at Deutsche Bank
AG in London. Part of the bubble has already been unwound, he says. The
problem is, "nobody quite knows where that ends."
Hard Hit
Especially hard hit: the market for loans to big U.S. companies with low
credit ratings. Problems in this market have been percolating for months.
These loans, known as leveraged loans, were a popular way to finance the
multibillion- dollar private-equity buyouts of recent years that have wound
down amid the credit crunch, like the takeovers of Freescale Semiconductor
Inc. in 2006 and TXU Corp. last year. Investors started to shun buyout loans
last summer, causing a buildup of the debt on bank's balance sheets.
During the past two weeks, prices on many of these loans have fallen to
levels that in a normal environment would indicate that the market expected
the corporate borrower to restructure or seek bankruptcy protection. But,
though they are creeping up from record lows in 2007, the default rate on
leveraged loans is still very low, at around 1% in January, out of the more
than half-trillion dollars of these loans outstanding.
Investors are also fleeing leveraged loans because the payments they make to
investors are tied to short-term interest rates. With short-term rates
falling, thanks to the Fed's rate cuts, those payments are shrinking.
"The yields are just not all that attractive especially if you fear that
[interest rates are] going to fall further," says Christian Stracke of
debt-research firm CreditSights in London. "That just means that the yield
you are going to be receiving is going to fall further."
The loans to Freescale and TXU are trading at around 80 and 90 cents on the
dollar, respectively, after being issued at about face value -- large
declines for these kinds of instruments.
Many types of investors have left the market for such loans, including
individuals. According to AMG Data Services, investors pulled their money
out of bank-loan mutual funds for the 18th straight week as of last
Wednesday, an exodus that has withdrawn $4.26 billion from the market.
This, in turn, has created problems for securities called collateralized
loan obligations, which are pools of bank loans bundled together and sold to
investors in pieces. Like the mortgage market's collateralized debt
obligations, these instruments were assigned high credit ratings and were
touted as spreading the risk of default on the underlying debt.
This week, UBS Securities and Wachovia Securities will be trying to sell
portfolios of loans that may be held by a class of collateralized loan
obligations called market-value CLOs. Both investment firms were lenders to
these CLOs, which depend heavily on borrowed money. Now, with the market
value of the loans behind these securities falling, the firms are
liquidating a total face value of more than $700 million of them.
Fitch Ratings last week cut the credit rating on pieces of 24 CLOs, putting
several of them deeply into junk territory, with ratings in the triple-C or
double-C range. Fitch also says it is reviewing its methodologies for rating
market-value CLOs. These investments have triggers in place that force banks
to liquidate loans being used as collateral when their prices fall by a
certain amount.
Added Burden
Having to liquidate portfolios of collateral is an added burden for banks,
which already had $152 billion of loans they were trying to sell from
buyouts of recent years. As the values of the loans they are holding
decline, they could need to take additional write-offs. Market-value CLOs
account for about 10% of the estimated $300 billion market for CLOs,
according to research by J.P. Morgan Chase & Co.
Related investments called total return swaps have also been hurt. These
instruments are set up by banks for hedge-fund clients or other investors to
buy loans with borrowed money. The loans serve as collateral, and when the
values of the loans decline, the banks' clients can be driven into forced
sales.
Citigroup Inc. is one of several banks affected by the upheaval. The bank
structured nine of the 24 CLOs Fitch downgraded, amounting to about $4.5
billion of loans, according to a person familiar with the matter. Citigroup
issued a statement Thursday saying the bank hasn't liquidated any loan
collateral associated with its total return swap program.
Debt Fears
Problems are cropping up elsewhere in credit markets. Money-market investors
in the past have been large buyers of short-term instruments backed by
tax-free municipal bonds and student loans. But they have been shunning
these instruments -- known by such names as auction-rate securities and
tender-option bonds -- because they fear the debt used to back the
instruments will default or get downgraded by rating services.
Thursday and Friday, Goldman Sachs Group Inc. held auctions of hundreds of
millions of dollars in securities backed by student loans, all of which
failed to drum up enough demand at their asking prices.
More than half of the nation's $2.6 trillion of municipal debt, meanwhile,
is guaranteed by bond insurers like Ambac Financial Group Inc., MBIA Inc.,
and Financial Guaranty Insurance Co. Because these insurers are also on the
hook for billions of dollars in troubled subprime-mortgage- related bonds,
their guarantees are no longer worth as much. Concerns about the credit
ratings of the bond insurers are filtering into muni markets.
Several sales of auction-rate securities have failed to draw sufficient
interest from investors in the past two weeks. These include auctions held
by Georgetown University and Sierra Pacific Resources Inc. The failures
leave investors paying a premium to lenders who would rather let go of the
debt.
Big banks are now working to pour new money into the bond insurers, which
could help relieve some stress in the financial system. But the spreading
turmoil suggests that might not be enough to benefit banks and investors.
Commercial real estate is another segment of the market that is showing
cracks. There were no new offerings of commercial mortgage-backed securities
in January, and the cost of protection against default on such securities
issued in 2005 and early 2006 has more than tripled, according to Market
Group's CMBX index. Goldman Sachs estimates banks could write down $23
billion from CMBS losses this year.
Showing posts with label fiscal crisis. Show all posts
Showing posts with label fiscal crisis. Show all posts
12 February 2008
10 November 2007
NOW the recent news on Billiton (BHP) and Rio Tinto!!
Rio Tinto surges to record amid talk of further bid activity
Independent, UK -3 hours ago
By Nick Clark Shares in the mining giant Rio Tinto soared to a record close as the markets anticipated further bid activity in the wake of its rejection of ...
Bidding war talk sends Rio Tinto shares soaringScotsman
Steelmakers fear duopoly if BHP bid for Rio Tinto is allowedTimes Online
Rio Tinto: BHP hostile bid would face hurdles including multiple ...Financial Times
National Post - TheStreet.com
all 1,181 news articles »
Independent, UK -
By Nick Clark Shares in the mining giant Rio Tinto soared to a record close as the markets anticipated further bid activity in the wake of its rejection of ...
Bidding war talk sends Rio Tinto shares soaring
Steelmakers fear duopoly if BHP bid for Rio Tinto is allowed
Rio Tinto: BHP hostile bid would face hurdles including multiple ...
Rio Tinto completes Alcan takeover The Age, Australia - Major miner Rio Tinto Ltd says the company's $41 billion takeover bid of Canadian aluminium producer Alcan Inc has closed, with 98 per cent of shares ... For sale: Rio Tinto coal mines Teck Cominco seen as suitor for Rio Tinto US coal mines Alcan reports Q3 results |
UK Stocks Gain, Led by BG Group, Rio Tinto, British Energy Bloomberg - BHP Billiton Plc, the world's largest mining company, and Rio Tinto Group advanced. British Energy Group Plc climbed after Goldman, Sachs & Co. added shares ... European Stocks Pare Losses; Rio Tinto, Anglo American Advance Rio Tinto rejects 3-for-1 share offer from BHP Billiton UPATE Thursday Lunchtime Market: Rio Tinto lifts FTSE, but banks ... |
London shares firmer midmorning; Rio Tinto up on rumours of ... CNNMoney.com - 9, 2007 (Thomson Financial delivered by Newstex) -- London shares were firmer midmorning although off highs following rumours of a counter bid for Rio Tinto ... London shares close down; NY falls on Bernanke speech; Rio Tinto ... London shares lower midday; NY seen lower; Barclays denies ... London shares up early on; M&A and specific newsflow provides ... |
 China Post | Rio Tinto lifts Sydney; exporters trip up Tokyo MarketWatch - In Australia, markets gained on a surge in Rio Tinto Plc shares after the miner rejected a $110 billion, all-share approach from top global player BHP ... Asia-Pacific markets: Asian bourses witness another wild ride ASIA MARKETS Asian markets mostly down, exporters trip Tokyo Asian Markets Mixed On Friday |
VANCOUVER–A BHP Billiton Ltd. takeover of rival Rio Tinto PLC could end up being a boon to a Canadian mining industry that's been beset by foreign takeovers this past year, analysts said.
The potential combination of two giant seniors would no doubt result in antitrust regulators demanding the sale of a number of assets that could be picked up by smaller rivals, including Canadian mid-cap companies.
"There's been a lot of talk about a hollowing out of Canada's mining sector with the loss of quite a few large-cap companies, so this could be a chance for (Canada's) mid-caps to pick up some of the pieces to become larger players within the sector," said UBS analyst Tony Lesiak.
BHP ended months of speculation yesterday when it confirmed it had approached Rio Tinto in a deal that could be worth $159 billion (U.S.).
While Canadian icons such as Inco and Falconbridge have disappeared from the landscape north of the 49th parallel, midcaps such as Lundin Mining Corp. Ivanhoe Mines Ltd., Hudbay Minerals Inc. and First Quantum Minerals Ltd. could emerge as potential suitors for BHP/Rio cast-offs.
"Cash-rich Ivanhoe, for example, has quite the platform for putting deals together," said one analyst.
He said the Vancouver-based company is already implicated in a potential BHP/Rio deal because Rio has a strategic stake in Ivanhoe and its Mongolian Oyu Tolgoi copper-gold project.
Ultimately, analysts reckon antitrust regulators will end up looking at four specific areas if a BHP/Rio deal actually goes through: iron ore, aluminum and alumina, uranium, and copper assets. Once BHP announced its offer, speculation immediately started mounting over the fate of Canada's aluminum giant Alcan Inc., which has just been taken over by Rio Tinto.
But analysts said the timing of BHP's offer for Rio Tinto is particularly telling.
"BHP let Rio Tinto mop up Alcan and then stepped in to buy Rio," said Tony Robson, co-head of mining research at BMO Capital Markets. "Clearly, because BHP is bidding for Rio after the Alcan deal means it wants the assets. They're a great prize, especially the hydro-electric power (assets) in Quebec and B.C."
He said BHP would surely honour the continuity agreements and various obligations in place between Rio, Alcan and Quebec's provincial government.
Another aspect of Canada's mining community that could also be dramatically affected is the north and its dynamic diamond sector.
Rio Tinto owns 60 per cent of the high-profile Diavik diamond mine in a joint venture with Aber Diamond Corp. And BHP owns 80 per cent of the rival Ekati diamond mine.
"There have been rumours Rio wants to sell out of Diavik and a BHP/Rio deal might mean both assets could be sold off or merged to create a larger competitive presence in the north," said one analyst. "If there's a sale, a company such as Aber could end up being a big beneficiary."
<<:>> <<:>> <<:>>
This essay was written in c 1959. It was copied from the Canadian Register of Commerce & Industry held in the Western Libraries at the University of Western Ontario. The original article should be consulted since this copy may contain some errors. The text and/or the images are being made available to researchers for scholarly purposes. They should not be used for commercial gain without the permission of the author or publisher.
RIO TINTO GROUP IN CANADA
Uranium properties, with a combined capacity of more than 19,000 tons of ore a day, the largest on the North American continent, constitute the most important underlying assets of the Rio Tinto Group of companies in Canada.
Rio Tinto Management Services Limited, a subsidiary of The Rio Tinto Mining Company of Canada Limited, is, in fact, managing companies whose uranium contracts come to a grand total of more than $630,000,000. Within five years, from April, 1953, to May, 1958, Algoma, the largest uranium camp in the world had come into being fully. Of the area's eleven huge mills, capable of handling a total of 35,000 tons of ore a day, seven belong to The Rio Tinto Mining Company of Canada Limited.
Built and brought into operation at an aggregate cost of nearly $200,000,000 for the entire Rio Tinto Group, the combined daily production rate of these Rio Tinto properties is now over the scheduled total of more than 19,000 tons of ore a day.
Rio Tinto (Canada) Limited was actually incorporated March 2nd, 1955, as a wholly-owned subsidiary of the Rio Tinto Comparty, Limited, of London, England. It immediately acquired a substantial interest in Algom Uranium Mines Limited, which was thereafter administered by a management subsidiary, Rio Tinto Management Services Limited.
1956--The purchase of the mining interests in Canada of the man behind the Algomauranium finds, Mr. Joseph H. Hirshhorn, New York-Toronto financier, followed on May I st, 1956.
The name of Rio Tinto (Canada) Limited was changed to The Rio Tinto Mining Company of Canada Limited and its capital was increased.
The 85-year-old Rio Tinto Company of London, England, today holds voting and beneficial control of Rio Tinto Canada. Mr. Hirshhorn is chairman of the board of directors of the Canadian company and retains a substantial share holding in the company.
In addition to Canada, the London company, through subsidiaries, has extensive mining interests in other parts of the world, including large copper holdings and nickel prospects in Rhodesia and uranium in Australia.
Algoma Uranium Area--The Canadian company's principal assets, at the present, consist of its interest in associated companies which hold government uranium contracts representing some 60% of the forecast capacity of the Algoma area.
Of these contracts, that held by Northspan Uranium Mines Limited for $275,000,000 is almost certainly the largest single contract of its kind in the world.
Algoma Uranium Mines Limited comes close with its contract of $206,910,000, whilst Milliken Lake Uranium Mines Limited at $94,525,000 and Pronto Uranium Mines Limited at $55,000,000, follow with substantial contracts.
These four companies together have eight mines and seven concentrator plants.
Pronto has been in production since October, 1955, with its one mine. Algoma's two mines came officially into production in February, 1957. Northspan is now in production with its three mines, "Lacnor", in production since the end of 1957, "Panel", in production since March, 1958, and Spanish American in production since May, 1958. The Milliken Lake mine came into production at the end of April, 1958. All these properties are in the Blind River region of northern Ontario.
Capitalization and Officers--Rio Tinto Canada is capitalized at $15,000,000 of authorized 5% debentures due May Ist, 1963, of which $14,668,000 are outstanding, and 80,000,000 no par common shares of which 44,227,615 shares were outstanding as at December 31st, 1957.
Officers and directors of The Rio Tinto Mining Company of Canada Limited include Joseph H. Hirshhorn, chairman of the board; Hon. Robert H. Winters, president; Dr. E. B. Gillanders, executive vice-president; W. B. Malone, vice-president and treasurer; Dr. D. R. Derry, vice-president (exploration); W. H. Bouck, vice-president (legal); Henry Blaise, J. N. V. Duncan, Sam Harris, Senator S. A. Hayden, Rt. Hon. C. D. Howe, B. R. P. MacKenzie, Leo Model, Frank Petito and Sir Mark Turner, directors.
last updated 2 Aug 2005)
BHP Billiton Plc
Shareholders
On Oct. 6, 2000, Billiton Plc announced that it has acquired 95% of the outstanding common shares of Rio Algom Limited. The acquisition was completed on Nov. 29, 2000.
On Dec. 15, 2000, the Rio Algom Ltd’s U.S. uranium mining business was sold to Billiton Base Metals, a wholly owned subsidiary of Billiton Plc.
In 2001, Billiton Plc. and BHP merged to BHP Billiton Plc.
On June 3, 2005, BHP Billiton became the major shareholder of WMC. As of August 2, 2005, BHP Billiton owns 100 percent of WMC Resources Ltd. shares.
Head Offices
BHP Billiton Plc
1-3 Strand
London WC2N 5HA
United Kingdom
Tel.: +44-20-7747 3800, Fax: +44-20-7747 3900, email: corporate@bhpbilliton.com
Neathouse Place
London SW1V 1LH
United Kingdom
Tel.: +44-20-7802 7000, Fax: +44-20-7802 7332
BHP Billiton Limited
Bourke Place
600 Bourke Street
Melbourne Victoria 3000
Australia
Tel. +61-3-96093333, Fax: +61-3-96093015
> View company's press releases
> View company's ASX announcements
> Download Annual Report
Subsidiaries
(uranium related ones only)
- (100%) Billiton Base Metals
- (100%) - Reno Creek ISL project, Wyoming, USA
- (100%) - Quivira Mining Co
- - Ambrosia Lake, New Mexico, USA
- - Lisbon, La Sal, Utah, USA
- (100%) - WMC Resources Ltd
- (100%) Olympic Dam, Roxby Downs, South Australia
- (100%) Yeelirrie Project, Western Australia
See also: BHP Shareholders for Social Responsibility
Subscribe to:
Posts (Atom)
