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

To: John Pitera who wrote (8075)	8/2/2007 9:33:53 PM
From: John Pitera	Read Replies (2) \| Respond to of 33421

Credit Chill Freezes Leveraged Deals By VICTORIA HOWLEY, KATE HAYWOOD and MARIETTA CAUCHI August 3, 2007 LONDON -- The big chill gripping global credit markets has caused 46 leveraged financing deals around the world to be pulled since June 22, representing more than $60 billion in funding that companies had planned for mergers and acquisitions. The number of deals pulled last year: zero. The credit squeeze has slowed to a trickle the flood of debt financing that has driven the buyout boom for the past couple of years. None of the 46 pulled financings have led to the cancellation of takeovers. But with banks saddled with billions of dollars of debt they can't sell to investors, it could make it harder for other deals to get initial financing from banks. Already, some companies that had put themselves on the auction block are shelving sale plans. "The gap between [financing] deals -- which were doable in June and those which are doable now -- has widened, and the only way right now the gap can be bridged is by valuations coming down, greater focus on operational improvements, or sponsors accepting lower returns," says Simon Parry-Wingfield, head of European leveraged-and-acquisition finance at Morgan Stanley in London. Banks have been left holding debt for about $400 billion in uncompleted management buyouts and leveraged buyouts around the world that they had planned to sell to investors, according to data compiled by Baring Asset Management, which also tallied the total number of pulled deals. In addition to the $60 billion of financings that have been postponed, this total includes those deals that banks have underwritten but haven't yet tried to sell as loans and bonds to investors. By comparison, banks last year sold some $4 trillion of loans and more than $837 billion of bonds from high-grade and speculative-grade companies globally, according to data provider Dealogic. DEBT DILEMMAS For those bonds and loans to be sold, companies likely will have to accept higher borrowing costs. That is most likely to affect private-equity firms, which rely largely on leveraged finance. Corporate buyers are less affected because they can finance their acquisitions through cash or the sale of new shares, as well as debt. Problems with U.S. subprime mortgages have pushed up yields on corporate debt in recent weeks. But bankers, ever the optimists, say the funding drought is unlikely to halt the five-year boom in mergers and acquisitions. While more-difficult credit markets may affect the pace of deals and the average debt-to-equity ratio that lenders will accept, it won't completely put the kibosh on deal making, bankers say. But buyout firms must be willing to pay more to raise cash and accept lower leverage to stay in the game. Benchmark Note Edges Up in Choppy Trading Day Credit concerns and stock markets continued to drive U.S. Treasurys, with government bonds finishing flat to slightly higher after a choppy day of trade. Treasurys once again traded in lockstep with stocks throughout the day, a pattern that's held for the last few weeks as investors attempt to assess the level of risk in the marketplace. But amid lingering fears about the ultimate impact of bets gone wrong on the shaky subprime-mortgage market, Treasurys traded in a tight range yesterday. The benchmark 10-year note was up 2/32 point, or $0.625 per $1,000 face value, at 98 1/32. Its yield fell to 4.753% from 4.759% Wednesday, as yields and prices move in the opposite direction. The two-year note, however, ended down 1/32 point to yield 4.563%. "It's the same credit-concern story," said Jason Evans, head of government trading at Deutsche Bank in New York. "This is just going to be around for some period of time, and the market is now getting very well trained to react first and to ask questions later. It's going to translate into perhaps a little excess volatility." --Deborah Lynn Blumberg

To: John Pitera who wrote (8075)	8/6/2007 12:45:54 AM
From: Jon Koplik	Read Replies (1) \| Respond to of 33421

GREAT comment by Jim Grant on financial panics ................................ This was in an otherwise "routine" 8/5/07 Floyd Norris NYT article about credit markets "tightening up" (lately). *************************************************************** The credit squeeze is coming at a time when the American economy seems to be growing, despite problems in the housing market, and the world economy is strong. “The underlying economy is very healthy,” said Henry Paulson, the Treasury secretary, as he visited China last week. But a good economy in no way precludes credit problems. In fact, it is during good economic times that credit standards are most likely to be so lax that bad loans are made. “Financial panics don’t happen during depressions,” said James Grant, the editor of Grant’s Interest Rate Observer. “They happen on the brink of depressions. The claim the world is prosperous is beside the point.” Copyright 2007 The New York Times Company.