AIG posts 500 million pound collateral on Canary Wharf leases

LONDON (MarketWatch) -- American International Group Inc has been forced to post more than GBP500 million as collateral to cover possible defaults on rental payments on properties in Canary Wharf leased by Lehman Brothers Holdings Inc. and Citigroup Inc. The move was triggered by a fall in the credit rating of AIG, which provides securitization to insure the leases.

Correct.

It seems that remarkably few people around here know what "underwriting" is...

More hare brained underwriting (as you put it) on par with what AIG did with credit default swaps.
But when I do stupid things I lose money
When AIG does stupid things it makes money!!
Or at least its genius employees do
I wonder what kind of bonuses this "underwriting" team took home?

What is going on here is that parties are demanding that AIG prove it make good on what it underwrote. By posting collateral aka reserves. What a novel idea!

Canary Wharf--One Canada Square

BACKGROUND In 1987 the Canadian Reichmann brothers became interested in London's vast Canary Wharf development, a municipal initiative whose goal was the transformation of former docks east of the city into a new corporate office center intended to rival the city's centuries-old business district.

Canary Wharf called for the eventual construction of twenty-four buildings containing twelve million square feet of office space to be connected to the city center by new rail and subway links.

However, lack of financing halted construction until the Reichmanns agreed in 1987 to pump several billion dollars of their own money into the project and serve as its managing partners. The Reichmanns' reputation as savants reassured other lenders, and development of Canary Wharf finally proceeded, promising no less than a restructuring of London's commercial office market and the possible formation of a new center for business throughout Europe.

The Reichmanns' most lucrative deals had occurred in the middle of real estate recessions (the Uris purchase in 1977 and the World Financial Center in 1980), prompting many observers to admire their courage and foresight when the market strengthened and their projects became gold mines. Canary Wharf, on the other hand, was initiated at the height of a real estate boom which had already enjoyed five years of solid growth.

When the bottom fell out in 1989, the Reichmanns found themselves in serious trouble along with the ninety-odd banks and other lenders who had put their faith in the Reichmann mystique.

To make matters worse, their company Olympia & York was also completing work on 55 Water Street in New York City, the world's largest single office building as measured by square footage, and the brothers had become entangled in the decline of Campeau Corporation, the Canadian retailing conglomerate in which the Reichmanns were major shareholders.

"Securitizing" music albums went kaput----didn't foresee iPods, net downloads, exploding technology.......

Bowie Bonds ---- are asset-backed securities of current and future revenues of 25 albums (287 songs) that David Bowie recorded before 1990. Issued in 1997, the bonds were bought for $55 million by the Prudential Insurance Company. They paid an interest rate of 7.9%.

Collateral was royalties from the 25 albums. The average life of the bonds was ten years.

By forfeiting ten years worth of royalties, Bowie was able to receive $55 million up front. Part of the money was used to buy out some rights to Bowie's songs owned by a former manager. Bowie was able to issue the bonds because, unlike many artists, he had kept control of his copyrights and master recordings.

The Bowie Bond issuance was perhaps the first instance of intellectual property rights securitization. The securitization of the collections of other artists, such James Brown, Ashford & Simpson and the Isley Brothers, later followed.

The Bonds are named Pullman Bonds after David Pullman, the banker who pushed the original Bowie deal. In March 2004, Moody's Investors Service lowered the bonds from an A3 rating (the seventh highest rating) to Baa3, one notch above junk status.

This downgrade was prompted by lower-than-expected revenue "due to weakness in sales for recorded music." A downgrade to an unnamed company that guarantees the issue was also cited as a reason for the downgrade.

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