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Friday, July 20, 2007

Loan Derivatives Indexes Drop to Record as LBO Debt Hits Snags

" Indexes that allow investors to bet on the health of the leveraged loan market, which has fueled the private-equity boom, fell to the lowest since they started trading as investor demand for the debt wanes.

The indexes are falling as Chrysler has been forced to raise its proposed interest rates to fund the takeover of its auto and finance units by Cerberus Capital Management LP and as investors speculate that Kohlberg Kravis Roberts & Co. may have to offer higher rates to investors on 9 billion pounds (18.5 billion) of loans to finance the buyout of U.K. pharmacist Alliance Boots Plc.

"Boots and Chrysler are two absolutely huge deals that are being seen as the test for appetite for risk,'' said Gary Jenkins, partner of London-based credit fund Synapse. "There's undoubtedly been a transfer of power towards the investor base.''

There is "kind of a little freeze in the marketplace,'' JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said July 18 on a conference call with investors. "If you see this continue you will see the Street taking on a lot of bridge loans and more aggressive repricing of those things.'' JPMorgan is the biggest U.S. underwriter of leveraged loans, according to data compiled by Bloomberg. "

Its getting bad enough that a significant number of deals are falling through:

" At least 17 speculative-grade companies canceled or restructured loan or bond offerings since mid-June. "

Source: Loan Derivatives Indexes Drop to Record as LBO Debt Hits Snags (