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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (5887)	3/25/2002 1:21:52 PM
From: John Pitera	Read Replies (2) \| Respond to of 33421

Hi Hawk, Bill Gross's article and the reverberations it has caused since Wed. have been very interesting to watch. GE had realized that they needed to reduce their reliance on the Commercial Paper market even before Gross had written his article. They issued 11 Billion of debt instruments and then placed the shelf offering for the additional 50 billion of potential offerings. The Commercial Paper market has been losing it's liquidity and several high debt borrowers such as WCOM and TYC had been such out of the CP market the past several months. This article from Feb 14th WSJ highlights how more Tier two companies were becoming unable to raise money in the commercial paper market, and it's also interesting to note that there were a record number of companies who's CP was downgraded from Tier I to Tier II (which is a lesser credit grade in the commercial Paper market) in 2001. Here is the piece on the credit crunch that has been kind of forming.: --------------------------------------------- NEW YORK -- The door to the U.S. commercial-paper market has slammed shut to some companies, raising fears of a potential credit crunch. Commercial paper is an important source of short-term funding for corporations needing a constant supply of working capital for such items as inventory investments and payroll expenses. Normally, such financing should be cheap now, thanks to the Fed's aggressive rate cuts. But since the collapse of Enron, which made investors reluctant to hold the debt of some companies, the commercial paper market has been under pressure, with certain borrowers effectively shut out. If the situation deteriorates, some economists warn, it could trigger a credit crunch that would offset the Federal Reserve's aggressive injection of liquidity last year. The latest victim of tight credit conditions in the CP market is Qwest Communications International, which has been linked to an investigation into the bankruptcy-court filing of Global Crossing. Thursday, Standard & Poor's downgraded Qwest's long-term credit ratings. It cited the company's inability to roll over its commercial paper, which forced the company to draw down $1.1 billion in bank credit lines. Qwest's problems follow those recently encountered in the CP market by Tyco International Inc. What concerns some analysts is that this selective risk aversion is spreading to a wider cross section of the market. CP rates for so-called Tier Two companies, which carry the lower P2/A2 rating for CP, as opposed to the P1/A1 ratings for Tier One issuers, have become prohibitively expensive. Message 17064964