Experts: OC Likely to lose big on Street’s Investments

The Orange County Register’s Ron Campbell follows up today about the failure of one of the Structured Investment Vehicles (SIV) Whistlejacket. Chriss Street has invested $80 million in this investment which went into default last month.

Orange County will probably lose some of the $80 million it sank into a defaulted investment, financial experts say.

It’s “very unlikely” that Orange County will get repaid in full when its investments in Whistlejacket Capital mature next January, said Joseph Mason, a finance professor at Drexel University in Philadelphia. “Next January is almost an eternity in terms of how quickly these structures are crumbling.”

Named for a famed 18th-century English racehorse, Whistlejacket Capital is limping into receivership. The structured investment vehicle or SIV has lost most of its value since July. It failed to pay off Wednesday on three notes to other investors totaling $300 million.

“You should assume you’ve already lost a significant amount of that $80 million,” said Michael Ehrlich, a SIV expert at the New Jersey Institute of Technology in Newark. “Right now, you’re stuck.”

But county Treasurer Chriss Street said, “I still think the county will get all its money back.”

There’s more…

Mark Adelson, a Long Island, N.Y., consultant on structured finance, said the county and other Whistlejacket creditors face a hard choice: Liquidate and lose money, or wait and hope.

“There’s no way to liquidate a pile of securities (now) and not get clobbered,” Adelson said.

The county briefly considered selling Whistlejacket and its other SIVs last autumn, county portfolio manager Paul Cocking said. But the closest thing it could get to an offer was a distress bid.

Several Wall Street firms – among them Merrill Lynch and Credit Suisse, which sold the county Whistlejacket – made an informal offer to buy the county’s SIVs for 15 cents to 25 cents on the dollar, Cocking said. The county passed.

Investments in the current market are by no means safe.  The fluidity allows for great returns in some cases and great loss in others. The SIV’s the County has invested in have us as a senior holder.  We get paid back before others. But as Ron’s article points out the way the investment is deteriorating, there may not be much left betine we are to be paid.

Just one more example of how over confidence when investing can get you into a hell of a lot of trouble.  Click Here for the complete article.