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					                              Structured Credit
                              Research and Advisory

                                                                                                 DECEMBER 2010

                              This periodic newsletter is distributed to wholesale investors by Structured Credit
                              Research & Advisory Pty Ltd, an independent advisory firm specialising in fixed
                              interest and structured products. Topics covered are timely market news and
                              extracts from our Monthly Reports provided to our Clients. To contact us about
                              any of our services, or if you wish to unsubscribe from this newsletter, please call
                              or e-mail:

                               Perpetual Settles Mahogany with Lehman
                               Perpetual Trustees looks likely to settle its dispute with Lehman over swap
   We encourage clients
                               counterparty payments in a court hearing in the US scheduled for 15 December.
    and non-clients to
                               The settlement will allow the unwinding of the Mahogany structure and the
  contact us for our more
                               underlying institutional CDO’s held by Mahogany.
in depth view of the likely
 impact of this settlement
                               The actual terms of the settlement have not been disclosed to the market and are
     on their holdings
                               being kept highly confidential by both Perpetual and LBSF. Figures were actually
                               blacked out of the documents released by the court.

                               Perpetual has not sought formal feedback from Mahogany bond holders but has
                               acted unilaterally to agree a settlement with Lehman citing Lehman’s pre-condition
                               of absolute confidentiality. The settlement will likely set a precedent for the
                               institutional CDO’s affected by Lehman’s default. We encourage clients and non-
                               clients to contact us directly for our view of the likely impact of this settlement on
                               their holdings.

                               Corporate Credit Events
                               Ambac Financial Group, the parent of bond insurer Ambac Assurance, filed for
                               bankruptcy protection at the beginning of November. Whilst we anticipated the
The default of Ambac was       default, we were hopeful the insurer might delay the bankruptcy filing until early
 significant as it caused      next year. Anglo Irish Bank, which is not as widely referenced by CDOs, also
actual losses on a number      triggered a credit event in November after the Irish government effectively forced a
         of CDOs               debt restructuring on subordinated debt holders.

                               We have already informed clients on the impacts of these credit events on the
                               CDOs that they hold and which we cover, but we are happy to respond to enquiry
                               from non-clients who may have individual concerns regarding their CDO

                               The default of Ambac was significant as it caused actual losses on a number of
                               CDOs. We have recently provided forward looking predictions of expected losses
                               going forward to help clients plan their future cash flows and provision accordingly.

                                  December 2010 I I phone 02 8014 4246

                                European Sovereign Debt Woes Resurface
                                The most recent global credit developments concern European sovereigns;
                                especially the increasing challenges faced by Greece, Ireland and (to a lesser
                                extent) Portugal and Spain where markets have been extremely volatile.

                                The relevance to Australian investors is largely through contagion effects. Should
The major banks are still       the situation in Europe lead to another banking crisis similar to the GFC, valuations
    reliant on offshore         on leveraged instruments such as CDOs will likely fall and a lack of access to
 funding and a possible         funding could result in increased corporate default rates. One mitigating factor for
 liquidity crisis will likely   the CDOs we cover is they predominantly reference US rather than European
   cause a reduction in         corporates and few CDOs we cover reference distressed European entities.
lending. This will further
     increase effective         While direct exposure to Europe is small for Australian banks, the majors are still
   interest rates above         heavily reliant on offshore funding and a possible liquidity crisis will likely cause a
those set by the Reserve        reduction in lending as Australian banks will be restricted in their ability to borrow.
            Bank                This will further increase effective interest rates above those set by the Reserve
                                Bank. A banking crisis will also likely restrict global growth which will almost
                                certainly affect Australia which has largely avoided the worst effects of the GFC
                                through its commodity led exports to China which will slow in any global recession.

                                We have found large differences between valuation methodologies employed by
                                different arrangers (and distributed by different brokers) to value structured
                                products. Variations usually arise because of the different “risk management”
  If Clients ever need to       techniques” imposed by the legal areas at the various banks as they seek to
     trade, they can be         minimize any perceived liability.
 deceived into believing
they are getting excellent      Some banks simply quote the derivative value as a mark to market to clearly
 prices, when in fact we        distinguish it from any bid valuation they have for the security whereas others quote
   have seen instances          mid markets and others quote bids. Some banks even quote bid values subtly
where the trading price is      disguised as mid valuations. In this way if clients ever need to trade, they can be
 over $10 away from the         deceived into believing they are getting excellent prices as the arranging bank can
       true mid-market          “bid” very close to the “mid market” valuation, when in fact we have seen instances
                                where the trading price is over $10 away from the true mid-market.

                                We independently price the structured securities and encourage any clients thinking
                                of selling to contact us before trading so we can ensure they are receiving fair
                                treatment. We can also often achieve the best execution as well through our good
                                relationships with all the leading brokers and arrangers.

Simon brings a wealth of        SCRA Expansion
    experience in fixed
   interest and energy          We are pleased to announce that Simon Brooks has joined our team. Simon brings
    trading from a long         a wealth of experience in fixed interest and energy trading from a long career in the
career in the UK markets        UK markets with international banks Rabobank, Dresdner, Calyon. Simon will be
                                helping us expand our fixed interest research and advisory service and also
                                working on a number of expansion projects as we continue to grow the business.

                                   December 2010 I I phone 02 8014 4246

Structured Credit
Research & Advisory
ABN 76 131 548 199

Who is Structured Credit Research & Advisory?
Structured Credit Research & Advisory is an independent investment research & advisory firm. We
provide impartial research, advice and valuations to wholesale clients who invest directly in fixed income
products, listed or unlisted structured securities, and other investment products such as term deposits
and investment funds. Structured investments that we currently cover include collateralised debt
obligations (CDOs), RMBS, credit, interest rate, commodity, equity and property linked notes and other
principal protected securities.
We are a 100% independent research and advisory company and to avoid conflicts of interest, we do not
engage in any brokerage, transactional or funds management services.
For further details please contact us at:
                               Phone:         02 8014 4246 /47 /48
                               Fax:           02 8014 4249
                               Address:       Suite 4, 384 Oxford Street, Bondi Junction, NSW 2022


The information contained in this newsletter is general in nature and should not be used as a basis for
making any financial decision. SCRA does not warrant that the contents herein are accurate, reliable,
complete or up-to-date with respect to any information, projection, illustration, representation or warranty
(expressed or implied) in, or omission from, this report.

SCRA is an independent research and advisory firm that does not trade or transact in any of the securities
mentioned in this newsletter. Clients should seek our current opinion at the time of transacting before
making any investment decision.

SCRA, to the fullest extent permitted by law, disclaims all liability for any loss or damage suffered by any
person by reason of the use by that person of, or their reliance on, any information contained in this
newsletter or any error or defect in this newsletter, whether arising from the negligence of SCRA or its
officers, directors, employees, agents or associates or otherwise.

                                December 2010 I I phone 02 8014 4246

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