Street Talk: What's The Value Of Plummeting Assets?
One of the biggest problems the Street has is that no one knows how to value assets that are plummeting: in particular mortgage backed securities and their derivatives, and (to a lesser extent) land in markets that are experiencing severe downturns.
Today, the Street is talking about two deals that at least show some signs of setting pricing trends. First, Citadel's deal for $3 billionof ETrade's debt. Three billion in debt sold at 27 cents on the dollar. Of course, most of it is collateralized debt obligations and other mortgage securities. Twenty-seven cents on the dollar is pretty low, but at least it is a price.
Second, Lennar is selling about 11,000 lots of land to a joint venturemostly owned by Morgan Stanley's real estate arm. JP Morgan notes they are selling the land with a book value of $1.3 billion (valued on Sept. 30th) for $525 m. That's forty cents on the dollar. That is also pretty low, but again at least it is a price.
What's not clear is whether these recent sales will serve as a floor for prices or not. What they ARE doing is attracting attention on the Street and is almost certain to lead to other sales at distressed prices. This is what we want: let's get pricing of some kind.
Lennar trading up fractionally.
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