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Morgan Stanley, which recently took $2.48 billion in loans from New Century for collateral against the $2.5 billion line of credit it extended to the near-defunct subprime lender, announced a public auction for the pool of loans on Friday, reports the New York Post. (hat tip: Matt Padilla, OC Register)
March 26, 2007 — In a dramatic reversal, Morgan Stanley is in the process of holding an auction for $2.48 billion in mortgages from subprime lender New Century.
The loans represent the collateral given to Morgan for a $2.5 billion credit line the firm extended to New Century. As the Irvine, Calif. -based company sank deeper into dire straits earlier this month, Morgan assured the market that the loans and repurchase agreements it had made to the company were in order.
It appears that Morgan has less confidence in the health of this collateral now that it had two weeks ago. Now, Morgan does not want to draw attention to the sale: It announced the sale of the 13,200 loans in a small public auction notice in a print ad Friday.
Surprisingly – or not – Morgan Stanley kept the auction notice very low key; only providing a text ad in the paper. The company declined to comment on the sale. This is probably a pretty good indicator that the loans in that pool are quickly becoming distressed, or have a risk assessment that points towards a high likelihood of the debt becoming distressed in the near-term.
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