To: John Pitera who wrote (3243 ) 2/9/2001 1:25:29 PM From: John Pitera Respond to Floyd Norris: The Junk Market Is Lending, but Banks Aren'trevival of the junk bond market has been the most impressive market story of 2001. Companies that could not have sold bonds late last year now get money easily. Even telecommunications bonds rated below B level — the nether regions of junk — are being sold. But last month buyers lined up for $500 million in seven-year bonds that paid lower interest than Levi was willing to pay three months before. What had changed for Levi was not its financial outlook; it was the market. 60 percent of banks told the Federal Reserve that they had tightened corporate credit over the last three months . None admitted to easing.might be going too far in the other direction, and urged them not to "cut off credit for borrowers with credible prospects." But bankers are seeing enough loans from earlier years go sour that they are scared to make risky loans now, as the economy weakens. A decade ago, he faced the same problem, which led to a lot of talk that the Fed's sharp easing of credit then amounted to "pushing on a string." Eventually the banks grew more friendly, but only after losses from previous credit cycles began to ease."crossover investors," institutions that normally avoid junk bonds but that saw them as amazingly cheap. a lot of money was wasted on bad investments and loans that will not be repaid . It will take time for those who provided the capital to work through the problems. In the meantime, corporations that need money face significant problems that will not be quickly solved by the Fed's interest rate reductions.
