CDO Whisperer Brett Jefferson on Securitization Markets and TruPS CDO Relics
Episode publishedPodcast: Forward GuidanceForward Guidance
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Hello, everyone. I have some rather big news for forward guidance listeners. This will actually be one of the final forward guidance episodes that I'll be hosting. The extremely talented Felix Javeen will be taking over forward guidance very shortly, and I'll be leaving to host a new podcast called Monetary Matters. You can subscribe to the Monetary Matters YouTube channel right here, and the Monetary Matters podcast channel will be set up very shortly. And, of course, you can stay up to date with my work by following me on Twitter at Jack Varley 96. Thanks, and let's get into today's intervie
you, Jack. Pleasure to be speaking with you tonight.
Brett, as you know and as some of the audience may know, this is my, final episode of forward guidance. So somewhat emotional one for for me, but I'm really excited that we'll be I'll be going out strong because this is gonna be a very, very special interview. I wanna focus on an asset class that before I had heard of you, I I'd never even heard of this asset class. And it's an asset class that I understand, you've been very involved in and and are one have been and and continue to be one of the biggest players in this asset class. And that asset class is known as the trust preferred collatera
Sure. Sure. So let's start with, the market of securitization. Securitization take assets that were created, and they form a vehicle to finance them in a better way. They basically create stand alone finance companies, whether that's with mortgages, whether that's with loans, whether that's with asset backed securities, consumer receivables, or whether that's with trust preferreds. And a trust preferred, is something that they can't create anymore. They were basically regulated out after the financial crisis, but they're issued by banks and insurance companies. And, basically, in the mid eight
CDO, a collateralized debt obligation, is just a wrapper. You could put anything in a collateralized debt obligation. So, you know, people who've seen the big short think of CEOs that, the asset the underlying asset is subprime mortgage backed securities, which are made up of, you know, and at the time, low quality mortgages. And so that is the assets in the CDO. The liabilities that are issued are what other people own, and those investors got, totally hosed in 2008, and that's part of what caused and led to the great financial crisis and the, you know, subsequent recession. And so the a trus
kinda funny. We we you know, when do you start a firm? So you decide you're gonna start a firm, and there's a lot of things you gotta do. We actually, you know, incorporated or filled out our documents in 2007, sort of went out and I was the first investor and then started to buy things in May of 2008. And I for the 1st 6 months, I was, you know, finding different types of securities. And I was I was looking at mortgages. I was looking at CLOs, but then I started really buying, trust preferred CDOs probably in the first one was in the later part of 2,008. And I think the the bigger part of it
what was the bottom in trust preferred CDO liabilities? The bottom of the stock market was March 2009. What was the bottom of, you know, if there was some index? I don't know if there is of the trust preferred. And and what was the how many cents on the dollar were they trading at? No.
There's no index even though I used to joke that there was a Trump's index, and, of course, I I was the one who who had it. You know, look, I bought depending on the deal, I I bought bonds for 1¢ on the dollar. And I bought bonds for 1¢ on the dollar that it pai
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