Closed for Sandy

Due to the impending hurricane in the New York City area (where I live), we will return to blogging later in the week.

If you are looking for interesting reads on the storm, this is one of my favorite resources: http://www.wunderground.com/blog/JeffMasters/show.html

Stay safe out there.

-Hunter

Advanced Distressed Debt Lesson: Trade Dispute Litigation: What Distressed Investors Need to Know

A few months ago we introduced readers to one of Distressed Debt Investing's new contributors: David Karp of Schulte Roth Zabel. His first post was well received by our readers. Now David is back with a series of posts that I think are HIGHLY topical to the current investment environment, especially as more and more investors move into trading claims and bank debt to pick up added returns in less liquid parts of the capital structure.

A problem of course is that with trade claims, there comes a number of salient issues on the more technical aspects of the trade. Buying a registered bond that is represented by an indenture trustee in a bankruptcy brings about it some benefits due to market standardization and history. Conversely buying a trade claim carries unique risks specific to the claim.  (A detailed primer on these risks and how the market trades around then can be found in the linked article David co-wrote for Bloomberg Law Report in January 2011)  This year those risks have been brought to light due to a number of rulings and case dealing with trade dispute litigation.

A number of courts have recently considered common bank debt and bankruptcy claims trading terms and conditions under New York law, addressing one or more central issues for distressed debt traders and in some cases challenging investors’ fundamental understanding of the effect of “market standard” transfer documentation. While some of the decisions have given the market comfort, others have left distressed investors scratching their heads.

David's next three posts will highlight the impact these cases may have on distressed debt traders and explain how certain of these disputes may have been preventable through better pre-trade diligence and planning.

Part I of this series highlights a dispute between a trade vendor and a bankruptcy claims buyer over when the buyer’s put right, triggered by a potential impairment of the purchased claim, becomes enforceable and whether or not the buyer can rely on the seller’s representations and warranties as forward looking guarantees as to the validity of the claim. Part II will analyze a dispute between a claims buyer and the Debtor’s liquidating trustee over the trustee’s objection to the purchased claim. Part III of this series will explain new 5th Circuit case law clarifying the binding nature of oral agreements for bank debt trades in a manner consistent with the courts of England and Wales confirming for both US and UK based distressed bank debt traders that “done” means “done” and even when trades are subject to documentation and consents.

Enjoy the post!


Part I: “Offensive” Use of Put Right by Bankruptcy Claims Buyer

A recent decision by the Second Circuit highlights a bankruptcy claim buyer’s use of a contractual put right as an offensive weapon to offset an investment turned sour.  The Second Circuit vacated a SDNY District Court decision that had denied the buyer’s attempt to enforce its put right triggered by an objection against the claim.

In that case, the buyer, Longacre Master Fund, Ltd. (Longacre), had purchased certain claims against Delphi Automotive Systems  from ATS Automation Tooling Systems, Inc. (ATS).  In a companion case, Longacre purchased similar Delphi claims from D & S Machine Products, Inc. (D&S).  The claim purchase documents in both cases were “full recourse” documents that gave Longacre the right to require ATS or D&S to repurchase their claim, with interest, in the event it became “objected to.”

At the time of the purchase, the distressed investors expected unsecured creditors to receive nearly a full recovery and Longacre paid ATS around 89 cents/dollar for the claims.  Delphi’s case did not turn out as most investors anticipated, and the unsecured creditors’ recovery under the confirmed plan of reorganization was far lower than initially expected.  After the plan went effective,  Delphi’s post-reorganization successor included the ATS claims in an omnibus objection under section 502(d) of the bankruptcy code.  A 502(d) objection to a claim asserts that the claimant is subject to a preference action and until that action is resolved, the claims is temporarily disallowed.  In this case, ATS had received certain payments from the debtor during the 90-day preference period, making it a potential preference defendant.

After ATS failed to resolve the objection to the claim with the 180-day grace period provided in the Assignment of Claim Agreement, Longacre demanded the refund of its purchase price plus interest.  ATS rejected the demand and Longacre then sought to enforce the contract through litigation in the District Court for the Southern District of New York.

Longacre’s suit principally relied on two contract provisions in the Assignment of Claim Agreement.  First, it alleged, the omnibus objection constituted an “Impairment” under paragraph 7 of the Assignment of Claim Agreement:  “Subject to paragraph 16 below, in the event all or any part of the Claim is ... offset, objected to, disallowed, subordinated, in whole or in part, in the Case for any reason whatsoever, pursuant to an order of the Bankruptcy Court (whether or not such order is appealed) ... (collectively, an “Impairment”), Seller agrees to immediately repay, within 5 business days on demand of Buyers (which demand shall be made at Buyers’ sole option), an amount equal to the portion of the Minimum Claim Amount subject to the Impairment multiplied by the Purchase Rate ..., plus interest thereon at 10 percent per annum from the date hereof to the date of repayment.”  Focusing in, Paragraph 7 provides that a claim is impaired when “all or any part of the Claim is . . . objected to . . . for any reason whatsoever, pursuant to an order of the Bankruptcy Court.”

Longacre also asserted that the debtor’s omnibus objection constituted “Possible Impairment” not resolved within 180 days under Paragraph 16 of the Assignment of Claim Agreement:  “[I]n the event a possible Impairment is raised against the Claim in the Case and actually received by Buyers (a “Possible Impairment”), Buyers shall promptly notify Seller.... If at any time after the 180th calendar day following the day on which the Possible Impairment was filed against the Claim or otherwise formally commenced (herein, the “Limitation Day”), Seller’s opposition and/or defense against the Possible Impairment has not been fully resolved and is not likely to be fully resolved within a reasonable period of time, then Seller must immediately repay an amount calculated in accordance with paragraph 7, as if there were an Impairment in respect of all or part of the Claim and Buyers had made a demand under paragraph 7.

The District Court did not enforce these provisions as written, but rather granted ATS’ motion for summary judgment.  See Longacre Master Fund, Ltd. v. ATS Automation Tooling Systems Inc., 456 B.R. 633 (S.D.N.Y. 20122).  The court disagreed with Longacre that the debtors’ omnibus objection constituted an “Impairment” or even “Possible Impairment” because an objection based on section 502(d) is not a substantive objection to a claim.  In so doing, Judge Sweet implied that the “objected to” language of the put right only referred to objections that challenged the validity or enforceability of the claim in the hands of the transferee.  Analyzing the merits of the objection, the court found that the debtor’s “objection” was actually just a reservation of its right to object to the claim in the future.  The court’s reasoning was partially based on a much-criticized decision in Enron II, which purported to distinguish rights and disabilities that travel with a claim based on whether the transfer was done by “sale” or an “assignment.”  This curious and much criticized line of reasoning has now come into play in the context of purchases of claims against KB Toys, Inc.  There, after neither party could, in the bankruptcy court’s view, adequately articulate the difference between a sale and an assignment, Judge Carey of the Bankruptcy Court in Delaware, rejected the Enron II holding.  See In re KB Toys et al., No. 04-10120, 2012 WL 1570755 (Bankr. D. Del. May 4, 2012).  Judge Carey’s decision is currently on appeal to the District Court of Delaware in ASM Capital LP v. Residual Trustee of KBTI Trust (In re KB Toys, Inc.), No. 12-716 (D. Del.).  Enron II and In re KB Toys et al. will be the subject of Part II of this series.

Contrary to the ATS decision, Longacre’s prevailed in its case against D&S, also decided in the District Court of the Southern District of New York and on principally the same issues.  See Longacre Master Fund, Ltd. v. D & S Machine Products, Inc., No. 10-6090 (S.D.N.Y. Feb. 14, 2011).  In the D&S case, Judge Pauley broadly interpreted “objection” and found that the put right was triggered by Delphi’s filing of its objection.  Given the divergent district court rulings, these cases were consolidated for purposes of appeal to the Second Circuit.

The parties’ appeal papers painted very different pictures of the suits.  D&S called Longacre’s action to enforce the provisions as “nothing more than a disingenuous attempt to evade the consequences of its poor investment decision.” Similarly, ATS called Longacre’s efforts “desperate and disingenuous.”  Longacre’s pleadings, on the other hand, stressed the “clear, unambiguous terms” of the agreements and that an objection is an objection.

The Second Circuit reversed Judge Sweet’s ruling in the ATS case, holding that “nothing in the language of Paragraph 7 of the Assignment of Claim Agreement requires that the objection be meritorious” and Paragraph 16 requires the temporary return of the purchase price when there is an unresolved “Possible Impairment.” The Second Circuit also held that the mere filing of the omnibus objection triggered ATS’s repurchase obligation, “stating they were ‘objecting to’ the [Claims], and the Bankruptcy Court issued an order stating that the ‘Objection’ was preserved,” regardless of whether the “objection” constituted a reservation of rights.  The Second Circuit did, however, remand the case to determine the factual question of whether ATS had knowledge, at the time of the assignment, of a potential impairment of the claim related to a preference payment, which would result in a breach of ATS’s representation that “to the best of ATS’s knowledge, the Claim is not subject to any defense, claim or right of setoff, reduction, impairment, avoidance, disallowance, subordination or preference action.”

In its complaints against ATS and D&S, Longacre also claimed that the actions filed against the original claimholders and the objections by Delphi also caused the sellers to breach their representations and warranties in the Assignment of Claim Agreements.  For example, Longacre claimed that the Delphi objection breached ATS’s representations that “the Claim is a valid Claim in the amount of at least $2,138,334.67.” Critically for market participants, enforceability of this type of representation as a forward looking guarantee remains unresolved as neither district court was willing to find, at the summary judgment stage, that the contract unambiguously required representations and warranties to be satisfied after the Effective Date.  Judge Sweet, in ATS, explicitly stated that the contract called for the truthfulness of the representations and warranties to be evaluated on the Effective Date because these were not expressly forward-looking.  In D&S, Judge Pauley held that a representation that the claim “will not be disputed or defended [] is arguably contrary to the reasonable expectation of the parties because it would require D&S to make warranties and representations regarding matters over which it has no control.” This interpretation that the representations and warranties are not in certain cases forward-looking, even though they did not relate to a specific time, is generally inconsistent with claims buyers’ expectations .  Unfortunately, these cases will not yield further clarity on the forward-looking nature of reps and warranties because that issue was not the subject of the Second Circuit appeal.

Takeaways

Claims buyers should find comfort in the fact that the Second Circuit’s holding enforced the express language of the Assignment of Claim Agreement in a manner consistent with market expectations of the function and triggers for contractual put rights.  Courts, however, may be sympathetic to claims seller’s (especially non-market participants) arguments against claims buyers attempts to use a put right or indemnification offensively, to recover from a bad investment, as opposed to defensively to protect against a specific “impaired” claim.  Even though Longacre appears to have overestimated the recovery on the Delphi claims, it was able to mitigate and possibly eliminate its loss through offensive use of its contractual put right.  If Longacre prevails on remand in the District Court, it will recover interest on the purchase amount from the trade date until the date the objection was ultimately resolved, which may result in turning its likely loss into a winning trade.

David J. Karp is a Partner in the New York and London offices of Schulte Roth & Zabel LLP, where his practice focuses on corporate restructuring, special situations and distressed investments, distressed mergers and acquisitions, and the bankruptcy aspects of structured finance.  David leads the firm’s Distressed Debt & Claims Trading Group, which provides advice in connection with U.S., European and emerging market credit trading matters.  David is an avid speaker and writer on distressed investing related issues, recently co-authoring “European Insolvency Claims Trading:  Is Iceland the Paradigm?” for Butterworths Journal of International Banking and Financial Law and “Trade Risk in European Secondary Loans” for The Hedge Fund Law Report.  David is an active member of the LMA, APLMA, INSOL Europe and the LSTA where he is a member of the Trade Practices and Forms Committee.  Erik Schneider and Neil Begley, associates at SRZ, assisted in the preparation of this entry.

Two Items For Readers

I will make this quick as we have a much longer post coming out tonight:

1) If you want to compare notes on OSG (everyone is looking at it; apparently 300 people on the CRT call yesterday), please shoot me an email. I've got some initial thoughts that I'll be writing up next week as the technical picture becomes more clear.

2) Why is $SATC a rocket ship? What am I missing? What's the bull case? I and many other smart guys keeping coming up with zero recovery for equity.

You can reach me at hunter [at] distressed-debt-investing.com

Docket Update: Marathon Seeks Appointment of Examiner in AMR's bankruptcy

Today, Marathon Asset Management filed a motion (Docket #5089) to appoint an examiner in American Airline's bankruptcy. Marathon has been all over the AMR bankruptcy docket since the commencement of the case including being a part of a group of creditors represented by Vedder Price disclosed in a Rule 2019 docket entry (other creditors included Anchorage, BlueMountain, Cyrus Capital, Trilogy Capital, to name a few). In the document, Marathon states that it owns "well over a hundred million dollars of claims against the Debtors, including substantial claims against American Airlines"

The motion to appoint an examiner stems from arguments from Marathon (and other creditors) that questionable transactions occurred between AMR Corporation, American Eagle Airlines, Inc and American Airlines, Inc in the months proceeding the bankruptcy. The document above (the motion to appoint an examiner) lays out specifics of Marathon's arguments and a fascinating read for those that are involved in the American Airlines bankruptcy case. Specifically, claims traders that have participated in various parts of AMR corporate structure.

The document summarizes Marathon's main contention:

"In the weeks leading up to the filing of the Debtors’ chapter 11 cases, American Eagle and American Airlines consummated a series of intercompany transactions that resulted in American Airlines assuming $2.26 billion of dollars in additional debt that American Eagle previously owed to the Financing Parties (the “Prepetition Transactions”). On their face, the Prepetition Transactions raise serious questions as to whether American Airlines received fair value in exchange for incurring the billions of dollars in debt and as to whether these transactions were otherwise improper." 

And continues in more detail later in the document:

"According to the Rule 9019 Motion, at the time of the Prepetition Transactions, American Eagle’s outstanding debt to the Financing Parties was approximately $2.26 billion. The Debtors claim that the value of the 263 regional jets at the time of the transfers was $1.8 billion, or $426 million less than the amount of the assumed debt. In addition, the Debtors claim that American Eagle cancelled certain intercompany payables of American Airlines to American Eagle and settled other intercompany receivables and payables...

...While, arithmetically speaking, it appears possible from the face of the Rule 9019 Motion that the transactions entered into between American Airlines and American Eagle just before the Debtors’ bankruptcy filing were an “even swap,” there is insufficient public evidence to reach that conclusion. It is no comfort that the Debtors make a bald assertion by the Debtors that avoidance of the $2.26 billion in debt assumed by American Airlines is “at best, remote.” To the extent that the transactions were in fact an “even swap,” it is unclear why they would have helped clean up the American Eagle balance sheet for the planned spin-off, or why they would have resulted, just months later, in a proposed deal with the Financing Parties, described in the Rule 9019 Motion and below, in which American Airlines is abandoning some of the Aircraft, and in which the Aircraft Parties are agreeing that the Aircraft are worth hundreds of millions of dollars less than they were supposedly worth a year ago."

For those that are not closely following the American Airlines bankruptcy case, the corporate structure is essentially AMR Corporation at the top as the parent of American Airlines, Inc and American Eagle Airlines, Inc. As Marathon noted in the motion, it holds "substantial claims against American Airlines" or American Airlines, Inc. By American Airlines, Inc assuming substantial debt from American Eagle, the claims pool at American Airlines, Inc got a lot larger (assets in theory also increased, but as the motion points out, assets were far less in reality). The bet here is that these transfers are avoided and the claims pool shrinks and recovery (all else being equal is higher) for American Airlines, Inc claims. Currently, AMR Inc claims trade in the low 40s context (AMR Corp - the double dip claims trade in the mid 60s).

A hearing date for the motion has been set to November 8th (objections due by November 1st). We will keep readers updated on how the proceedings play out. Marathon's motion is embedded below:

AMR - Marathon Examiner Motion

Hedge Fund Letter: Castle Union

A few months ago, Distressed Debt Investing interviewed Toan Tran and Steve White of Castle Union Partners, LP as part of our emerging manager series. It was a fascinating interview well received by a number of readers.

This weekend, I received Castle Union's first letter to investors which discusses some of the philosophies and positions of the fund. From reading this letter, I have more confidence in what I wrote a few months ago: These two investors are stars with bright futures.

My favorite quote from the letter: "Steve and I have a substantial portion of our liquid net worth invested with you in the Fund, and we will not expose ourselves and you to the risk of permanent capital loss simply to say we are 'fully invested'. Whether we are 76% cash or 5% cash does not change whether an idea is suitable for investment." Fantastic stuff. Enjoy the letter!

2012 q3 Letter Ddic

Docket Update: AMR Moves to Refinance Certain EETC at Par

This afternoon, American Airlines filed a motion with the bankruptcy court to repay certain existing prepetition debt. In a subsequent 8K/press release, the company notes, that in addition to obtaining post petition financing of $1.5B, AMR will also (my emphasis added):

...use cash on hand (including proceeds of the New EETC) to indefeasibly repay the existing prepetition obligations secured by the Aircraft, as applicable, which are currently financed through, as the case may be, an EETC financing entered into by American in July 2009 (the “Series 2009-1 Pass Through Certificates” (CUSIP: 023763AA3)), a secured notes financing entered into by American in July 2009 (the “13.0% 2009-2 Senior Secured Notes” (CUSIP: 023771R75)) and an EETC financing entered into by American in October 2011 (the “Series 2011-2 Pass Through Certificates” (CUSIP: 02377VAA0)), in each case without the payment of any make-whole amount or other premium or prepayment penalty.

Members and guests of the DDIC will know that I've been involved in the American Airlines bankruptcy since its very beginnings via the 2001-1 EETC (A and B tranche specifically). This trade has worked out wonderfully and I've since taken off most of the trader. For those interested, you can find the write up here: Hunter AMR Write-Up

As noted above, AMR will attept to repay three pieces of paper (I've included notional amounts according to Bloomberg and trading levels prior to announcement):

• 2009-1 EETC: 108.5-109.5 -> $446M
• 13% 2000-2 Secured Notes: 106.25-107.25 -> $174M
• 2011-2 EETC: 106.75-107.75 -> $704M

...without paying a make-whole amount, premium, or prepayment penalty. If all this paper is taken out at par, investors will lose (market loss) approximately $100M. 

Needless to say, a number of law firms better start sharpening their pencils because those note holders will not go down without a fight. Especially with that much market loss staring them in the face. 

I've really only spent significant time with the 2009-1 EETC. I've spoken to many parties even before the filing and my read was that AMR didn't have to pay the make-whole. The language is difficult, and there looks to be some drafting oversights, but net/net I believe those bonds in particular can be taken out at par (the indentures are embedded in the motion below). I didn't think they would actually do it (refinance the paper), but demand for airline collateral is red-hot now and they will be able to cut substantial interest expense and free up collateral in this move. The motion notes: "If the Debtors are able to take advantage of the existing low interest rate environment and issue the New EETC at rates comparable to the recent financings described above, the interest expense savings by the Debtors would be well in excess of $200 million."

Other investors believed otherwise hence the premium pricing on the bond which was still well back of similarly over-collateralized, high quality EETC. I believe some investors even thought there was a chance these deals had to be taken out at the make-whole which would also explain the pricing. 

I would not expect the bonds to trade directly to par. There will still be option value here for litigation claims, some sort of mediation or agreement in principal in a premium refinancing. 

I have embedded the motion below. A hearing is set to occur at the end of October on the motion.

AMR EETC Refinancing

Quick Admin Update

I wanted to provide readers with some quick updates re: Distressed Debt Investing:

• Posting will recommence this week with significantly more frequency. I will be announcing a number of new series and exclusive interviews with hedge fund managers and distressed debt professionals in the coming weeks.
• I spent the last few days answer emails over the past month that I had yet to respond to. If I didn't get back to you, please resend the email and I will respond.
• A number of investment conferences are coming up. If you would like coverage or advertising for the event, please email me.
• Many of you know this, but I maintain a Public Linked In group. You can join here: http://www.linkedin.com/groups?gid=2604443
• The Distressed Debt Investors Club continues to grow nicely. I often get emails about membership opportunities. Here are a few things I'd like to say: 
• DDIC members come from many of the largest hedge funds and investment bank in the worldI speak to Chief Compliance Officers quite often to  answer their questions regarding the service. Our compliance policies can be found here: DDIC Compliance
• There is a member only job forum on the site. While it is slow going now, I plan to expand this feature for members
• I have capped membership at 250 members. Like other services in this area, some members can no longer post or have moved on to a different part of the investment world. There is a natural churn in membership. Right now there are probably about 25 open spots. Members are required to post one idea every six months with at least one of them being distressed related.

As always, thanks for your continued support, suggestions, and readership. I have the best group of readers out there.

And finally: Who in their right mind invested in a drive-by holdco PIK toggle dividend deal with an 8 handle?

-Hunter

The Catch 22 about CLOs

A few weeks ago, I noted it was sellers market in credit. Since then, the market has had some very heavy days and some rather strong days. A few deals have even been pulled from the market on the bond side. With that said, the primary market was hefty to say the least, settling a monthly record with over $47.5B of paper being priced according to JPM. Winners in the month were trading names typical of this stage of the cycle with names like Petroplus, Ambac, Affinion, and Geokinetics seeing large price moves higher.

Leveraged loans also delivered a strong month. And frankly, the technicals felts a lot stronger than the high yield market. According to JPM, $34B loans priced during th emonth making it the 12th most active month ever. For the year, the CSFB Leveraged Loan index is up 7.80% with JPM reporting leveraged loans have gained 8.66% year to date.  All in all it was a very strong month (and so far year) for leveraged finance.

One vehicle that also shined this month were CLOs. 13 new CLOs priced in September with a total value of $6.2B. On a year to date basis, $32B of CLOs have priced which is nearly 3x as much as last year. This is still a far cry from the nearly $90B that priced in 2007. Just today LCD reported yet another CLO being priced by Och-Ziff with AAA garnering a L+148 coupon. I am hearing the forward pipeline is very strong with underwriters and arranging banks pushing the product hard on asset managers. Less reported, but still widely important: Secondary CLO spreads tightened up and down the capital structure.

I often talk about uneconomic sellers being the path to riches in investing. Find someone that HAS to sell, provide that seller with liquidity at a steep discount, profit. Capitalizing on problem or issue that has no impact (or very little impact) on the intrinsic value of securities is a profitable endeavor. The opposite is also true: Buying as asset or asset class because you have can be a terrible UNPROFITABLE endeavor. If a high yield manager is doused with inflows, he or she may have to put that capital work into a well-bid market where all of their peers have the same problem: Too much capital, not enough liquidity/sellers, buying assets higher.

When you think about the data I listed above of $6.2B of new CLOs vs $34B of primary loan issuance you wouldn't think there would be a problem. But then you start ticking off other salient factors:

• According to JPM, $9B of paper was paid down during the month (amort, bond for loan issuance)
• Refinancings accounted for nearly 50% of volumes in September
• There was an additional ~$1B capital coming into the asset class via retail inflows and possibly more from non-bank / non-CLO participants

So, with that said loan managers had to put $9B of paper to worth  (because it was paid down), and 50% of the volume was simply refinancing. So - realistically there was about $17B of new paper, up for grab for loan managers. $6.2B + $1B of new capital + $9B of pay downs gets you pretty close to that number. Now this is a simple exercise that doesn't take into account CLO managers that are past their reinvestment window and are unable to deploy new capital into loans except via amend and extends (which isn't really new money capital - but its a way to stay in the game and collect manager fees).

I have used the term in the past, but I think "feeding the beast" is an appropriate analogy for CLO structures. CLOs, due to their leverage, have liabilities to pay. To pay these liabilities, CLOs investing in underlying loans of corporations and capture an arbitrage spread. Assuming a few defaults here and there with modest recoveries, everyone, including the equity holders should be happy with their performance. But what if there weren't any underlying loans to buy?

CLOs need underlying loans to survive. In their ramp up, "warehousing" period, loan managers buy up loans to start the arbitrage machine in motion. When the market is really hot, managers are crawling over one another to try to get the best allocation to work for them as efficiently as possible. When the market is really slow and not a lot of private equity or M&A activity is happening to fuel issuance, again CLO managers are fighting to get allocations or bidding up existing paper to feed the beast. 

I worry the next cycle for leveraged loans will be a lot more painful than 2008. I worry a scenario where CLOs outside their reinvestment period are unable to purchase loans and there is simply just too much supply of loans to go around and prices have to clear at a level to get non traditional buyers into the market. This creates a vicious cycle where performing CLO tests will begin to fail (OC cushion) and they too will be less likely to purchase loans at a discount. And since TRS are not what they used to be, hedge funds may have to wait until loans get even lower because a L+500 asset at 80 doesn't quite hit the hurdle rate at 3x leverage (maybe 5x). Given the changes regulation like Dodd Frank has graced us with, dealer inventories are light and markets will be very very wide. And finally, many investors got a free pass (temporarily painful one) in the last cycle the matra of CLO AAA being an unbreakable structure is becoming accepted as religion is downright frightening.

The way I see it: Only an uneconomic buyer would buy a dividend deal with no covenants at these spread levels.