How the cosmic vulture plan might work

February 17, 2009 | By Jim Kim

The big knock on the public/private investment plan that Tim Geithner has put together has been lack of specificity. Mr. Market certainly demanded more details, and until we see the devils, people will rightfully remain skeptical. Breakingviews is out first with some hypotheticals about what it would take to succeed.

The big issue is pricing, and Breakingviews assumed that sellers would need a 20 percent premium to sell and buyers would need and internal rate of return of 25 percent. It also assumed that securities have an average of 40 percent upside over time. The upshot of the math is that the administration would have to provide the vultures with 85 percent of their total funding in the form of non-recourse loans (so they do not have to repay if deals go sour) and has to charge them just 5 percent interest. Is that doable?

For more:
- here's the article via Fortune