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In August 2007 the Mainsail II SIV-Lite was frozen by its trustee as a result of the ongoing credit crisis. The state of Maine held $20 million of Mainsail commercial paper in its Cash Pool portfolio, a short-term portfolio that puts temporary, excess state revenues to work. When word of the potential loss became public, the Treasurer came under attack. The case introduces the functions of a state Treasury department, with particular emphasis on the investment objectives and guidelines for the cash pool as well as its composition. The case reviews the events leading up to and including August 2007, the month when the credit markets first began to seize and when the financial crisis effectively began. It examines securitization, structured finance, and the Mainsail SIV-Lite structure in some detail.

The case describes the structure of Infrastructure Investment Trusts (InvITs) created and launched in Indian markets in 2017. Besides introducing InvITs and their potential role in relaxing the financing constraint created by the lack of an active corporate debt market in India, the case can help in analysing why the market is discounting the IndiGrid unit price relative to its issue price. It also offers an opportunity to value IndiGrid's Patran acquisition.

Zoe Greenwood, vice president at Foundation Investment Advisors, was glancing through the offering memorandum for a new commercial mortgage-backed securities (CMBS) deal on April 1, 2010, a time when the opportunities for commercial mortgage investors had been bleak to the point of comical. This new CMBS deal represented the first opportunity to buy CMBS backed by loans to multiple borrowers since credit markets had shut the securitization pipeline in June 2008.

The offering gave Greenwood a new investment opportunity to suggest to her firm's latest client. She had planned to recommend an expansion in her client's traditional commercial mortgage business, but these new bonds looked intriguing. Could the new CMBS offer her client a superior risk-return tradeoff compared with making individual mortgage loans?

After students have analyzed the case they will be able to:

• –Learn how to construct promised cash flows from both commercial mortgages and commercial mortgage-backed securities

• –Understand the benefits and costs of direct lending versus indirect lending (purchase of mortgage-backed bonds)

• –Underwrite commercial mortgage loans issued by others to identify potentially hidden risks

• –Evaluate at what price a mortgage-bond investment makes financial sense

–Learn how to construct promised cash flows from both commercial mortgages and commercial mortgage-backed securities

–Understand the benefits and costs of direct lending versus indirect lending (purchase of mortgage-backed bonds)

–Underwrite commercial mortgage loans issued by others to identify potentially hidden risks

–Evaluate at what price a mortgage-bond investment makes financial sense

In October 2008, in the midst of a financial crisis, Anthony Keating, investment manager at the Boston private bank Billingsley, Blaylock, and Montgomery, was searching for an investment strategy to recommend to his high-net-worth clients. Traditional investments in the equity markets were being decimated, and Keating’s clients would be looking to him for ideas. Inspired by the success of Paulson and Co., Keating began to explore the possibility of entering a trade that would profit as homeowners defaulted on their mortgages. The more Keating learned about the trade, the more he realized that he needed to know about mortgage-backed securities and credit default swaps. The case provides instructors with a chance to introduce these financial instruments, while at the same time providing lessons applicable to students interested in value investing or real estate finance.

After reading and analyzing the case, students will be able to:

• Explain how home mortgages are securitized into financial instruments that are traded in public markets

• Describe how credit default swaps can be used to speculate on the value of an underlying financial instrument

• Identify potential mispricing across related financial instruments

• Understand the potential risks and rewards of various financial investment strategies that look to capitalize on defaults on subprime mortgages

Explain how home mortgages are securitized into financial instruments that are traded in public markets

Describe how credit default swaps can be used to speculate on the value of an underlying financial instrument

Identify potential mispricing across related financial instruments

Understand the potential risks and rewards of various financial investment strategies that look to capitalize on defaults on subprime mortgages

The case introduces students to the nature of collateralized debt obligations (CDO) and the CDO origination process, with emphasis on the corporate structure of the special purpose vehicles, cash flows to various CDO tranches, and motivation behind CDO origination. Students will learn to quantitatively evaluate the risk-return profile of CDO tranches with emphasis on the equity tranche (also known as “toxic waste”). This is ideal for MBA and advanced undergraduate level courses on financial markets, financial institutions, and investments. In the case, an associate at the Debt Capital Markets desk of Lehman Brothers prepares a CDO issuance for Western Asset. Western Asset had been contacted by a group of commercial banks eager to sell senior secured bank loans and high-yield corporate bonds to lower their capital requirements and free up capital for additional lending.

In early 2008, IndusInd Bank (A), which had been faring poorly for several years, decided to bring on board a team led by Romesh Sobti, then managing director of ABN Amro Bank in India. The case outlines the challenges faced by the new team in attempting to turn around the bank. Students are invited to think through a turnaround plan for the bank.

Hedge fund Magnetar Capital had returned 25 percent in 2007 with a strategy that posed significantly lower risk to investors than the S&P 500. Magnetar had made more than $1 billion in profit by noticing that the equity tranche of CDOs and CDO-derivative instruments were relatively mispriced. It took advantage of this anomaly by purchasing CDO equity and buying credit default swap (CDS) protection on tranches that were considered less risky. Now it was the job of Alec Litowitz, chairman and chief investment officer, to provide guidance to his team as they planned next year's strategy, evaluate and prioritize their ideas, and generate new ideas of his own. An ocean away, Ron Beller was contemplating some very different issues. Beller's firm, Peloton Partners LLP, had been one of the top-performing hedge funds in 2007, returning in excess of 80 percent. In late January 2008 Beller accepted two prestigious awards at a black-tie EuroHedge ceremony. A month later, his firm was bankrupt. Beller shorted the U.S. housing market before the subprime crisis hit, and was paid handsomely for his bet. After the crisis began, however, he believed that prices for highly rated mortgage securities were being unfairly punished, so he decided to go long AAA-rated securities backed by Alt-A mortgage loans (between prime and subprime), levered 9x. The trade moved against Peloton in a big way on February 14, 2008, causing $17 billion in losses and closure of the firm.

This case analyzes the strategies of the two hedge funds, focusing on how money can be made and lost during a financial crisis. The role of investment banks as lenders to hedge funds such as Peloton is explored, as well as characteristics of the CDO market and an array of both mortgage-related and credit protection-related instruments that were actively used (for better or worse) by hedge funds during the credit crisis of 2007 and 2008.

Doug Scovanner, CFO of Target Corporation, was about to present his proposal at the November 2008 Board meeting. He was prepared to discuss immediate strategic actions which would provide support for working capital for the discount retailer. The retail community was about to suffer their worst fourth quarter in recent memory. Consumer spending had contracted, unemployment was rising and the deflated housing market had driven the economy into a recession. Although discount retailers had fared better than other industries during the second and third quarters, they were not immune to the overall economic downturn which had become a global crisis. To further complicate matters, Target's largest competitor, Wal-Mart, just posted third quarter growth even though Target was bracing for a busy holiday season. Scovanner anticipated further strain on working capital before year-end as cash flow tightened and the capital markets remained at a virtual stand-still.

In October, the CEO of JPMorgan Chase & Co., is preparing for the company's 2010 Q3 earnings conference call and wondering how to address the inevitable questions related to financial reform. It has been just over two months since the Dodd-Frank Financial Reform and Consumer Protection Act (Dodd-Frank Act) had been passed, and there was still much uncertainty as to how JPMorgan should address the reforms. JPMorgan had reported stronger than expected EPS in the third quarter, but analysts were more concerned about what strategic initiatives the CEO would implement in response to the Dodd-Frank Act. The act had introduced wide-ranging and industry-changing reforms that were aimed primarily at fully integrated financial institutions such as JPMorgan. While most of the rulemaking would be forthcoming from regulatory authorities, the CEO knew it would be best to address these issues immediately to protect shareholders by avoiding uncertainty.

This case is a sequel to the “IndiGrid: Creating India's First Power Transmission InvIT (A)” case. It describes the deal that would replace the trust's original sponsor, Sterlite Power, with a new set of KKR-led financial investors. It provides an opportunity to discuss the consequences of this change on the new investment manager's outlook for management and future acquisitions. The new investment manager, freed from the limiting interest of the original sponsor, had to search for investment opportunities from the perspective of incoming financial investors, which included the new sponsor. It also provides an opportunity to evaluate the trade-offs in investing in operational utility-scale renewable energy assets by the IndiGrid, which had so far only acquired operational transmission assets in its portfolio.