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Contagion or Fear of Contagion in Security Prices


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What are folks thoughts on contagion or fear of contagion is specifically real estate & other fixed income.  There has been some wild gyrations in real estate fixed income the past few weeks (LADR & NLY) being to examples.  Treasuries being used as collateral (increasing demand) is another effect.  It has spread to real estate finance companies like STOR & high quality first lien lenders like TSLX.  Does anyone have any insights to what has caused this.  I have heard rumors of margin calls & I know they can cause some contagion effects. 



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There have been  some levered ETF unwinds one BDC/MLP land.


I made some markets successfully in REIT preferred land this week (10-20% intraday moves, and I missed the best of it). My dad sent me an e-mail that his account was a “pattern day trader” which was a first. Looking at BDC debt now (not interested in equity except maybe highest of quality below 50 points of NAV)


General fears of lack of credit extension availability. For example, if you are BXMT, you’ve got a portfolio of 65% LTV loans that seems pretty safe, but you’ve back levered it with 0-40% corporate obligations, then all of a sudden 18% of your loan books NOI (hotel’s) drops 100%.


With respect to the mREITs, their earnings power is kind of collapsing and the repo market is strained. That said, they could  theory unwind their books quickly (the agency ones at least) and buy back stock. Also, if refi’s get pushed out by borrower credit problems that could help slow speeds.


It’s an exciting and scary time.



Two Exchange-Traded Notes See Forced Redemptions After 83% Drop


Thursday, March 19, 2020 03:33 PM

By Claire Ballentine


UBS Group notes fell below $5 minimum share value Monday

ETNs are tied to firms that cater to small businesses

(Bloomberg) --Two leveraged exchange-traded notes from UBS Group AG are facing mandatory redemptions after falling below a $5 minimum share value, according to a March 17 statement from the bank.

The two series of 2xLeveraged Long ETRACS, tickers LBDC and BDCL, are linked to the Wells Fargo Business Development Company Index and have a total market capitalization of about $15.6 million. They’re both down more than 83% year to date, according to data compiled by Bloomberg.


The underlying index, which tracks business development companies or investment firms that help small businesses meet their capital needs, was down 47% for the year. It trimmed some losses Thursday along with the overall stock market.


As the spreading coronavirus forces small businesses to close their doors, or drastically reduces customers, they’re facing limited cash flow to cover debt expenses.


The index’s largest holding is an 11% stake in Ares Capital Corp., which dropped almost 17% Monday.


UBS is also redeeming two series of the ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN, tickers MORL and MRRL. Those notes had a combined market capitalization of about $30 million.



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