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Banks seek out new buyers for Oracle data centre loans(ft.com)
30 points by zerosizedweasle 21 hours ago | 9 comments
dh2022 4 hours ago | parent | next [-]

Yikes. I think the biggest news is that these data center bonds are getting investment grade. The reason for this is not because their prospects have improved [0] - the reason is because they need more investors to buy them. Pension plans who can only buy investment grade bonds may be enticed to buy these bonds. And this way these bonds will make their way in pension plans. When defaults will start happening on these bonds expect bailouts - because we need to bailout pension plans.

It is eerily similar to the mortgage crisis in 2007-2008. Low grade mortgage bonds were given AAA rating and there were too many of these which then caused the crisis.

[0] the article mentions how more Date Center recent bonds required a higher interest rate. This implies the risk increased (during the same time Feds lowered the rate), hence the prospects for Data Center bonds diminished.

netsharc 20 hours ago | parent | prev | next [-]

https://archive.is/haWGQ

One paragraph there says the banks need to sell them so they can invest in other things... Do I smell the banks realizing "oh shit, we're holding a bomb, we need to convince some other fool to take it before it blows up...".

seanhunter 17 hours ago | parent | next [-]

If a loan is supported by a known lease it is more attractive to investors than a regular loan, so I somewhat doubt they are thinking about it like this.

The real reason they will be doing this is this is what they do in general. They don’t hold on to huge amounts of risk with predictable returns (because it consumes their operating and regulatory risk capital inefficiently) they will instead find buyers for that risk, which frees up capital they can then use on their next thing. That basically gives up some of the long term, low return, low volatility risk for shorter term, higher return, higher volatility risk.

skybrian 19 hours ago | parent | prev [-]

Banks commonly originate loans and then sell them. That's pretty normal nowadays.

zerosizedweasle 21 hours ago | parent | prev [-]

If the loans are such a good value, then why do the banks want to get rid of them so badly? Dumb investors...

seanhunter 17 hours ago | parent [-]

That’s exactly the same as going into a furniture shop and going “if this furniture was so good, then why would they want to sell it so badly”. They’re a furniture shop - they make and sell furniture. There’s only so much furniture you need for yourself after all no matter how good it is.

Investment banks make investment products for investors. They do keep risk for themselves so you will find when they sell these loans they will often keep a slice, but they only need so much Oracle datacenter loan risk - they want to have free capital to find other opportunities to fund.

marcyb5st 10 hours ago | parent [-]

It is not the same and your metaphor is bad. Furniture generates revenue when sold, loans generate revenue just by holding them as there is an interest that needs to be repaid.

Hence the shop sells the inventory as fast as they can, while banks hold safe loans as long as they can unless they believe that aren't safe anymore or that they can make more money with something else.

seanhunter 8 hours ago | parent | next [-]

You understand how present value works right? Holding a loan on balance sheet generates a stream of income that extends into the future and has to be discounted and have credit value adjustments applied, which is very expensive because you have to then hedge the rate and credit risk on top of funding the actual loans themselves. Selling a loan has two benefits over this. Firstly it generates actual cash now which you can book right away and is real so doesn't need to have CVA and discounting. Secondly it gives you a mark to market price for any piece of the loan or similar loans which you are still holding in your book.

I'm not speaking theoretically here - I have been forced to sell loans for capital reasons because they were too expensive to fund even though they were all current, 100% money good and massively overcollateralized.

zaphirplane 9 hours ago | parent | prev [-]

Or want to diversify to reduce exposure, after all a loan inherently has a risk. Doesn’t mean ( it could ) it’s a fire sale a eggs basket situation