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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (49346)	4/7/2006 7:01:21 AM
From: orkrious	Read Replies (1) \| Respond to of 116555

SECRET DOCKET’ IN D.C. COURTS 18 Percent of Federal Criminal Cases There Are Shielded From Public, Study Says abanet.org

To: mishedlo who wrote (49346)	4/7/2006 9:33:58 AM
From: Crimson Ghost	Read Replies (1) \| Respond to of 116555

Easy Money? Banks Get Lenient on Loans Companies Hit With Fewer Terms When They Borrow Their Funds; Big Investors Chase Fat Return By SERENA NG April 7, 2006; Page C1 When Dole Food Co. recently borrowed more than $1.3 billion, the lenders were so eager they imposed very few terms on most of the money they lined up. It was a tasty deal for the fruit-and-vegetable company, which will be able to use the fresh cash to help refinance other debt. But some credit analysts are getting worried about loans like that one, arguing that lenders are setting the bar too low for corporate borrowers. At issue are the performance hurdles that borrowers must clear to get and maintain loans. These hurdles are known as covenants in the business of corporate banking. Covenants can impose a wide array of financial requirements on a borrower, such as mandating that the borrower post certain revenue or income growth, or generate a certain amount of cash for every dollar of interest it pays. When a group of lenders team up to serve a corporate customer, the "syndicated loan" might come with a list of such terms to ensure the borrower remains healthy enough to pay off the debt. The number of covenants built into such loans is falling, especially among loans to riskier companies with below-investment-grade credit ratings, also known as "junk" ratings. This is happening even as the volume of new syndicated-loan issuance in the U.S. hit $1.5 trillion in 2005, up from $1.3 trillion in 2004, according to Reuters Loan Pricing Corp. At the same time, many large investors, such as mutual funds or pension funds, are hungry for higher returns, and have been buying up these loans as investments in the past few years. They also crave the floating interest rates that are typically attached to the loans. "It's essentially a borrower's market right now," says Mariarosa Verde, managing director of credit-market research at Fitch Ratings, a unit of Fimalac SA of Paris. "Credit quality is still strong, but this trend of shrinking covenants is laying the groundwork for the next round of credit problems." Fitch culled data from more than 6,600 loan agreements. It found that the number of covenants in an average loan package was five in 2005, compared with six in the preceding three years. Among speculative-grade loans, the number of covenants fell to six from eight. Many of these riskier loans are later packaged into bundled investments known as collateralized-loan obligations and sold to investors. Fitch notes that more loan agreements are leaving out common covenants, such as ones requiring companies to maintain certain ratios of debt relative to the cash they generate. "When you have a lot of money chasing deals, lenders may lose their appetite for enforcing covenants, and are more willing to waive them," says Bill Chew, managing director for loan and recovery ratings at Standard & Poor's, another ratings concern. Over time, fewer constraints may encourage borrowers to pile on even more debt, and that could weigh on some of these companies if interest rates rise or their businesses slow. Deutsche Bank AG helped arrange Dole Food's recent loan -- a debt offering in several parts -- and saw such strong investor demand that the company this week raised the size of the deal by $125 million to more than $1.4 billion. The deal included $1.075 billion in "covenant-lite" loans that impose minimal restrictions on the company's operating and financial performance. Moody's Investors Service has a Ba3 rating on the debt, which Dole plans to use to pay off loans that were issued at a higher interest rate. Moody's says the new arrangement will improve the company's liquidity. A spokesman for Dole said the company can't comment on the debt offering before its close later this month. Some financial firms in the industry say there is no problem. "Credit standards are undeniably more liberal than they were a few years ago, but not to the point of being imprudent," says Michael McAdams, president of Four Corners Capital Management LLC, a Los Angeles investment firm that is majority-owned by Australia's Macquarie Bank. Mr. McAdams's firm buys noninvestment-grade loans, and he says the covenant terms he is seeing are more restrictive than in the late 1990s, when extremely loose lending standards hurt a lot of banks and other lenders once borrowers started defaulting. Also, while lenders are agreeing to fewer covenants, most speculative-grade loans are backed by the assets of the borrowing company, "so there's something else that helps to protect the value of the loan," says Daniel Toscano, head of syndicated loans at Deutsche Bank. Mr. Toscano says fewer loan conditions are beneficial for companies whose earnings may fluctuate because of volatility in raw-material or energy prices, making it harder for them to meet quarterly or annual financial targets. Write to Serena Ng at serena.ng@wsj.com