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Thursday, July 5, 2007

No Thanks, We're Stuffed...

" The world's biggest bondholders have had their fill of leveraged buyouts, convinced that increasing mortgage delinquencies will drag down the U.S. economy and drive debt-laden companies into default. "

What happens when you can't raise the funds for your massive leveraged buyouts?

" Investors are getting skittish just as private-equity firms led by Kohlberg Kravis Roberts & Co. and Blackstone Group Inc. prepare to sell $300 billion of bonds and loans to finance LBOs, according to Bear Stearns Cos. In the past two weeks alone, more than a dozen companies were forced to postpone or restructure debt sales. "

This all sounds so familiar...

" "There are some very scary analogies between high yield and the mortgage market,'' said Kevin Lorenz, a managing director who oversees $2.5 billion of high-yield assets at TIAA- CREF in New York. "You cannot do fundamental analysis and believe that those are creditworthy companies.''

Leveraged buyouts caused sales of high-risk, high-yield debt to rise 70 percent to a record $1 trillion during the first half of the year, according to data compiled by Bloomberg. Bonds and loans rated below BBB- by Standard & Poor's and Baa3 by Moody's Investors Service are considered below investment grade. "

This is his how credit bubbles begin to unwind. With a weakening buyout bid in markets, multiplies will have to contract and markets will tumble...

Source: LBO Debt Alarms Fidelity, Lehman, TIAA-CREF Managers (Update1) (


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