Under Fire Merrill May Come Clean On CDO Deal
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The announcement was initially viewed favourably, as analysts came out and said that, by clearing the decks, Merrill had taken a giant step forward. Within days, however, some analysts were having a rethink, and confusion reined over the terms of the deal - does the fact that Merrill is financing 75% of the deal itself actually mean that the value of the CDOs is far less than 22 cents on the dollar ? Was there a 'dump-back' clause that meant that Lone Star was only liable for the first $1.7bn of any additional losses on the CDOs portfolio it acquired, leaving Merrill on the hook for the rest ? Was the whole arrangement merely a sleight-of-hand to get these hard-to-value assets off the firm's balance sheet and re-introduced as a loan ?
These questions, and many more, are currently haunting Merrill Lynch over this deal. So much so, so CNBC claims, that the firm has been considering making additional disclosures about the deal, via a US Securities and Exchange Commission filing, in order to clarify the position and hopefully reassure the market that the deal really represents a good one for its business. And a filing could be made as early as Monday.
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