Banks stuck with unsold inventory of LBO loans have maintained a fair degree of market discipline, attempting to offload the paper at favorable prices and engaging in financing the sales rather than taking bigger haircuts so as to avoid further writedowns of still-unsold paper.
The sale of LBO paper held by Iceland’s failed banks and hedge funds is expected, particularly in this tight credit environment, to fetch much lower offers than banks are using to mark similar paper. That will lead to further writedowns.
From Bloomberg:
The value of high-risk, high-yield loans slumped amid speculation more than 1 billion euros ($1.4 billion) of debt being sold includes assets seized from Iceland’s banks.
Brokers sent details of loans used to fund leveraged buyouts for sale to investors and traders, according to four people who saw the lists.
“There are several bid lists of leveraged loans circulating,” said Louis Gargour, chief investment officer at London-based hedge fund LNG Capital, who is setting up a distressed debt fund. “One is from an Icelandic bank and two are from leveraged hedge funds.”…
“There are going to be more and more leveraged loans being sold off by a variety of different investors in the coming days and weeks,” said Charlotte Conlan, head of leveraged syndication at BNP Paribas SA in London. This “will inevitably have a knock- on effect on the mark-to-market for the rest of the loan investor community,” she said.
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Do they mean 1 billion or 1 trillion euros of debt?
Yves:
I’ve been reading your blog for the past year and have found it to be the single best source of critical news and informed musing on the state of the economy. I also enjoy the elaboration provided by comment posters who have experience and insights into the issues at hand. It’s the first thing I read in the morning and the last thing I check before bed. Great work. Thanks, Rob
This MIGHT be the point where we consider that all of that new capital STUFF that funded all that expansion in the economy mostly over the past ten years, that ALL of that capital came into existence as another debt.
Hedge Funds. Derivatives. Financial Futures. SIVs.
All of it new debt.
Payable with interest.
All of it.
Sooooooo,,,,,,,
Where does the money come from to pay back all that debt?
Anyone ???????
It comes from more debt.
And, if that ain’t exactly the problem that has you by the gut right now, then I don’t know what is.
Ultimately it comes from the taxpayer.
In case you missed Paulson’s call.
Public credit.
Debt-free money.
ONE HUNDRED PERCENT RESERVES.
Bankers loan out real money.
Capital FROM main street TO main street.
WE are the only banker needed in this deal.
Do not pass WALL STREET.
One get out of jail card.
Monetary Transformation.