Merrill’s deal with Lone Star explained

What does the recent MER(12.43 +0.87 +7.53%, ) deal with Lone Star mean? Marek Fuchs from The Street explains it in plain english. Here’s the take away:

These securities, after all, were valued at $11.1 billion a few weeks ago when Merrill reported its quarter results and are now being sold for $6.7 billion — but that’s not even the troubling part. See, the buyer would take the bucket of slop only if Merrill financed most of it. The company did — 75% worth — with debt whose only collateral are the assets that Merrill is selling. What does this mean in plain English?

Merrill is still open to tons of risk.

The company really only took out 25% of $6.7 billion, or $1.675 billion of risk, off the balance sheet.