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July 8 (Bloomberg) -- Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.
Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman
Structured finance securities (mortgage-backed securities, home equity asset-backed securities, commercial mortgage-backed securities)
Commercial real estate mortgage debt (including whole loans, B notes, and Mezzanine debt)
Again, a zombie loan is a loan to an institution which is unable to pay its obligations. Because, after the loan, the zombie's equity (assets minus liabilities) is exactly as negative as it was before the loan, no loan can restore the true warmth of life to the dead flesh of a zombie. Moreover, since a loan to a zombie cannot trade at par (someone has to take the haircut), the lender has lost money as soon as the loan is made.
So who would make a zombie loan? The answer is simple: only another zombie. But why would even a zombie loan money to a zombie?
Fool! The dead are beyond reason. This is what makes them zombies. Zombie finance is a money-losing proposition; zombies are money-losing institutions. The symmetry is striking and perfect. Of course zombies lend to zombies. This is one of the best ways to lose money.