Lynn Tilton’s Patriarch Partners has been fighting with a unit of bond insurer MBIA Inc. since at least 2009 over securities they created together starting in 2003, according to Bloomberg News. Patriarch bundled loans to troubled companies into a series of complicated securities known as collateralized debt obligations totaling more than $2.5 billion, only to see one of the instruments default last year. That CDO, known as Zohar I, is selling its assets with some $400 million of face value in an out-of-court liquidation auction on Wednesday. The outcome is crucial to MBIA Insurance Corp., the unit that guaranteed portions of two of the three Zohar CDOs. Valuations for assets in Zohar I will give a sense of MBIA’s possible losses from Zohar II, which comes due in January and for which the insurer guaranteed $770 million of securities. Zohar III, which MBIA has no involvement in, matures in 2018.
Officers of the largest U.S. pension fund recommended yesterday that their investment targets drop to 7 percent because of a cash crunch and changing market conditions, a move that would set a more cautious tone for those who manage retirement assets around the country, the Wall Street Journal reported today. The proposal to abandon a long-held goal of 7.5 percent over three years came during a board committee meeting of the California Public Employees’ Retirement System (CalPERS) in Sacramento. The rate would drop to 7.375 percent in fiscal 2017-18, 7.25 percent in fiscal 2018-19, and 7 percent in fiscal 2019-20. A reduction by CalPERS would have real-life consequences for taxpayers and cities. It would likely trigger an increase in yearly pension bills for the towns, counties and school districts that participate in California’s state pension plan. Any loss in expected investment earnings must be made up with significantly-higher annual contributions from public employers as well as the state. A drop in CalPERS’s return assumptions could also put pressure on other pension funds to be more aggressive about their reductions and concede that investment gains alone won’t be enough to fund hundreds of billions in liabilities.