CLOs susceptible to a fire sale 23 Mar 2007 If the managers of these funds of highrisk debt take fright, they might try to head for the exit simultaneously, causing a rout. There would, of course, have to be a trigger. But if the market jitters of recent weeks return, CLOs could be a flashpoint.
LBO shops still have the whip hand over bond investors 19 Mar 2007 US bond investors are howling after discovering some poison puts safeguards against LBOrelated losses are not that toxic. In the tugofwar between debt investors and LBO shops, the former will only prevail if there is enough hemlock in the chalice.
LBO borrowers have lenders over a barrel 19 Mar 2007 TDC isn't bothering to refinance its buyout debt. It is simply "repricing" its existing debt to get a better deal. Lenders have little choice but to comply. Despite the turmoil in US subprime borrowing, it seems demand for LBO debt is stronger than ever.
Loose lending may ensnare LBO borrowers 19 Mar 2007 Easy terms on LBO loans will give fundamentally strong companies extra breathing room to ride out economic downturns. But those with serious problems could use this flexibility to delay tough decisions, increasing the risk they will eventually default. Socalled "covenantlite" LBO loans will give fundamentally strong companies extra breathing room to ride out an economic downturn.
US consumption robust despite subprime woes 19 Mar 2007 A wave of defaults among less creditworthy homeowners will create only a modest drag on consumer spending. But problems at the lower end may filter up. If house prices fall further and lenders pull back, mortgagedfinanced consumption may shrink.
Could subprime meltdown derail LBO boom? 16 Mar 2007 Carlyle s boss points to several factors that could trigger the end of the private equity bonanza, from a terrorist attack to rate hikes. One missing from his list is the subprime debacle. Problems with mortgage loans could well affect investor appetite for buyout debt.
Microsoft image-polishing campaign falls short 6 Mar 2007 By lambasting Google, the software firm is strengthening ties to the search giant s enemies and trying to improve its own battered image. But its escalating war with European regulators over antitrust issues badly dents Microsoft s campaign to be seen as the good guy.
Buyout shops can dodge bond meltdown temporarily 5 Mar 2007 The sharp widening in highyield bond spreads last week caught some buyout financiers off guard. Univision, in particular, had to pay more. But LBOs aren t dependent on bonds any more. Buyout shops raise most of their debt in the loan market. It too will slide, but more slowly.
Subprime mortgage index bets are a crapshoot 2 Mar 2007 Deutsche Bank s $250m windfall from shorting a mortgage benchmark made reaping a profit look easy. And subprime prospects remain grim. But the index doesn t reflect reality. It s pushed around by onesided trades. That will make it hard to cash out of winning positions.
Will history repeat itself in credit markets? 28 Feb 2007 If the pattern set since 1920 still holds, then the credit cycle should turn in 2007. Moody s expects history to be a reliable indicator. But this time could be different. There seems to have been a Great Moderation in economic cycles. The turn may be delayed and very soft.
Another debt bomb drops on investors 26 Feb 2007 Credit Suisse is launching an exotically named synthetic CFO. That s not a finance director constructed of plastic and fibre. Rather, it s a fundoffunds leveraged up four times. Backtested, the equity tranche returns 30% a year. Looking forward is another matter.
Is subprime the first shoe to drop? 9 Feb 2007 HSBC and New Century have been punished for lower lending standards loans to less creditworthy US homeowners. The danger is that credit conditions will tighten as banks become more cautious and regulators breathe down their necks.
HSBC’s bet on Household turns bad 8 Feb 2007 The bank will lose $1.8bn more than expected on highrisk US mortgage loans. And the bleeding may not have stopped yet. HSBC's cutprice Household purchase isn t looking so clever. Investors may wonder how healthy HSBC s promotion arrangements really are.
Alcoa bondholders ignore gearing risks 23 Jan 2007 The US aluminium giant s $2bn bond offering was a blowout, luring investors eager for a corporate issue that protects against LBOs. But bond investors may still need protection from the issuer itself, which is catering to shareholders with a huge stock buyback.
Are property derivatives the next big thing? 22 Jan 2007 The market is growing fast, but is still not very liquid. But that may change with the launch of the first property derivatives hedge fund. After a long boom, the property market may become more volatile. And the creation of sector and regional indices will allow relative trades.
Deloitte’s Parmalat settlement shows hidden value 16 Jan 2007 The E115m payment may seem small. But Citi s and Bank of America s deep pockets have still to be picked. Parmalat s shares are pricing in only a 7% recovery from its E21bn of claims. That s too pessimistic.
AAA ratings are an endangered species 7 Dec 2006 There are now only six US companies with a tripleA ratings left. And Pfizer s is under review for a possible downgrade. The number has fallen nearly 90% over 25 years. While smart financing explains some of the trend, there are other less brilliant reasons.
Weather forced to raise costly E1.7bn loan 7 Dec 2006 It seems odd that the telecom investor is issuing pricey Pik debt to buy back a 26% stake held by Enel while prepaying cheaper senior debt. But the original LBO financing of Wind was so risky, that lenders tied the company up in knots. So Weather has to hoop jump to raise cash.
Steel becomes less cyclical 6 Dec 2006 Look at how Arcelor Mittal has been talking up prices and has now snapped up a E17bn credit facility on good terms. Mittal would be positive, but it does look less volatile. Owners are more profithungry, and demand growth has been unexpectedly strong.
Fixed income markets contradict themselves 6 Dec 2006 Falling US bond yields and an inverted yield curve suggest recession, but narrow credit spreads suggest healthy expansion. Inflation could resolve the conflict. There are signs of rising price pressures. If so, the only soft landing may be 30 feet underwater.