Martin Whitman - Profile

Martin Whitman is a veteran value investor with a long, distinguished history as a control investor. He is Co-Chief Investment Officer of Third Avenue Management LLC and has successfully identified value in securities for more than 50 years.

Whitman founded the predecessor firms to Third Avenue Funds in 1986 and M.J. Whitman LLC, a full-service broker-dealer affiliated with Third Avenue Management, in 1974. He has managed the flagship Third Avenue Value Fund since its inception and also manages the Third Avenue Value Fund (UCITS).

The Forest City Seniors, GMAC Seniors, MBIA Surplus Notes and Standard Pacific Seniors were acquired at prices that reflect, on average, yields to maturity well in excess of 25%.

At the time of acquisition, Fund Management believed that the probability that each loan would remain a performing loan was in a range of 85% to 95%. That remains true for Forest City, GMAC and Standard Pacific. Unfortunately, that may no longer be true for MBIA Surplus Notes. On February 19 th, MBIA announced as a fait accompli an asset stripping transaction under which MBIA Insurance Corporation, the issuer of the MBIA Surplus Notes, transferred without any consideration over $5 billion of assets and all the profitable going concern activities of MBIA Insurance Corporation to a second tier subsidiary of MBIA’s parent company. If this asset stripping transaction stands, the MBIA Surplus Notes surely will have suffered a very material permanent impairment. As a result, Third Avenue brought suit in Delaware Chancery Court seeking to undo the asset stripping transaction and policyholders have brought suit in Federal Court in New York’s Southern District with claims not dissimilar from those of Third Avenue. Litigation outcomes are always hard to predict, but Martin Whitman seems to have a strong case.

If Third Avenue prevails, either after trial or via settlement, the odds will become strong that MBIA Surplus Notes will remain a performing loan over its lifetime. Meanwhile, for the immediate future, say through January 2010, the Surplus Notes seem likely to remain a performing loan, albeit a lot less likely than would be the case had there been no asset stripping.

A final word on MBIA… In addition to the $362,167,000 principal amount of Surplus Notes, Third Avenue also owns 19,349,845 shares of MBIA parent company common stock. Probably the toughest thing we do as Fund Management is appraisals of portfolio company managements. Generally Fund Management seems to do a good job, but this is an area of our “safe and cheap”, approach where Fund Management probably screws up more than in any other single area. MBIA management certainly is a big disappointment to TAVF. Aside from the legal ramifications of the asset stripping, it seems to us that the transaction sullies the MBIA name in a field where it is utterly important to be viewed by otential policy holders as a company run honorably and with integrity. Understandably, MBIA wanted to separate its sound, profitable, domestic municipal bond business from its unsound, unprofitable structured finance business. There is no question in Fund Management’s mind that through consultation with the relevant parties, adequate protections for this separation could have been accomplished, and still can be accomplished, without the asset stripping; and with leaving adequate protection for the policyholders and creditors of MBIA Insurance Corp. Without apparently ever contacting any policyholder or creditor, MBIA management chose to proceed with its asset stripping ideas.

Management reluctantly sold the Fund’s positions in Hutchison Whampoa Common, St. Joe Common and Suncor Common. The sales of MGIC Common and Radian Common reflect a view that both companies may be suffering permanent impairments, as the U.S. housing market continues to deteriorate. Datascope Common was sold in a take-over transaction at a profit.