"All of us [banks] are really in the moving, not the storage, business.”
With those words the world learned yesterday that Credit Suisse had sold off its exposure to three closely syndicated loan deals—the buyouts of Harrah’s, Intelsat and Alliance Data Systems. Many in the syndicated loan business were taken aback that Credit Suisse had jumped the gun and sold off its exposure without consulting other syndicate members. Although the details are unclear, the effect today seems to be that others are following suit, bringing to market debt in a way to some say resembles a panic.
"There's a real panicky feel out there. It's become a game of hot potato," one syndicated loan market veteran told DealBreaker.
There's a lot of sensitivity around this issue, and many market players are declining to comment on it at all. There's talk that Clear Channel loans commitments may be in trouble. We're still digging.
Update: "80 is the new 90" for leveraged loans, FT Alphaville reports. This is putting pressure on CLOs, which are falling through the floor. Banks hold a lot of CLOs, especially the triple A CLOs they thought were the safest bets but may turn out to be worth far less than anticipated. They haven't disclosed much of these positions, according to FT Alphaville, because they were fully hedged. But here's the catch--they were fully hedged with swaps from bond insurers.
"Thus as monolines totter, banks are having to writedown the value of the CDS, and so add CLO exposures onto their balance sheets. Just at the wrong time - as CLOs’ paper becomes more distressed. While losses won’t be realised as severely as with RMBS, rating downgrades to CLO paper may well require banks to stump up extra regulatory capital at a time when they can least afford to," FT Alphaville reports.
Posted by , Feb 12, 2008 11:57AM
well done for a start john, good follow-through
Posted by old news , Feb 12, 2008 12:05PM
CS's pullout of harrah's is waaay old news carney.
Posted by Anominous , Feb 12, 2008 12:16PM
it is the CLO unwinds. CS walking is indeed old news. ask about the CLO unwinds and who is triggering them.
Posted by girly girl , Feb 12, 2008 12:21PM
diciplined selldown by underwriters was the only thing keeping this market intact. Now it is a total shit show. Altman is projecting huge rise in defaults, Libor dropping is forcing the TRS guys to unwind, undewriters are dumping this shit. It is totally insane. Meltdown. The average bid is in the low 80s. This is silly in light of the fact that these are straight forward secured loans, none of that complex derivative smoke and mirrors and you are essentailly the first guy at the table in the event of a default. But nobody cares about fundamentals anymore. It's get out while you can. Tribune is trading in the high 60s. wtf?
Posted by Anominous , Feb 12, 2008 12:27PM
yeah, I mean I take issue with your headline "Is the Syndicated Loan Market on the Verge of a Major Disruption?" we are well past the verge and into the major disruption. one guy at our firm thinks the average bid could hit 75. and as ms. girl aptly stated, these loans are secured and at the top of the capital structure.
Posted by inIT4the$ , Feb 12, 2008 12:32PM
Agreed, this issue has been around for a few months now.
Posted by , Feb 12, 2008 12:53PM
why we are sitting tight on SKF :)
Posted by Anal_yst , Feb 12, 2008 1:36PM
Btw did I just read it right that P&G is getting 7 and 22bps over Libor for the 2 $1.5bn notes? Am I missing something here???
Posted by , Feb 12, 2008 1:37PM
If CLO triple A paper is worthless, we have a much larger problem on our hands.
Posted by , Feb 12, 2008 1:41PM
anal_yst your irony is confusing me here. Are you saying that the PG rates are too high or too low?
Posted by just me , Feb 12, 2008 1:51PM
so, all powerful masters, what is a 7,000 room hotel in las vegas worth if nobody cares?
Posted by Gliker , Feb 12, 2008 1:55PM
Sounds like we are looking for reasons to panic.
Posted by Anal_yst , Feb 12, 2008 1:57PM
isn't 7bps a tad low, i mean i haven't seen the term sheet but SEVEN bps??? In this economic environment??? (even though p&g makes mostly staples, but regardless)
Posted by , Feb 12, 2008 2:30PM
PG is a fort knox quality credit. Their senior debt provides you with first call on the assets of an extremely underleveraged place. 7 bps premium is therefore fair given the extremely small risk of default.
Posted by , Feb 12, 2008 2:50PM
also, that's still what 120 over the treasury for a 1 year paper? agency paper is around 55 so this is not exactly free money for PG, i'd say this bond is fully valued but it grinds tighter on the break
Posted by Gin&Tonic , Feb 12, 2008 3:03PM
Come on Carney, I thought you had better contacts than that. CS dicking over other arrangers is December news.
We're way over the cliff right now. both the LCDX9 and HY9 are around 90 right now. Two B credits have to go out to mkt at L+500 [OID incl] (vs. a year ago when the same credit could do L+150).
The issue now is that TRS lines are being forced to sell portfolios, and the only people who are bidding are the distressed guys. On top of that, default rates are pikcing up.
Posted by , Feb 12, 2008 3:06PM
G&T wins a free lifetime subscription to Dealbreaker.
There used to be funds that leveraged up AAA CLOs....used to be.
Posted by , Feb 12, 2008 3:12PM
"...only people bidding are the distressed guys." I have a feeling things are a bit oversold. And the distressed guys are gonna do well here. Or maybe its a little too early. What say the rest of you?
Posted by , Feb 12, 2008 3:30PM
Are they even bidding in size or is it a few guys here and there? In my experience these things tend to hover near the bottom nobody looking to pull the trigger then all of a sudden one day you get a pig pile sending up the price 20 points
Posted by , Feb 12, 2008 3:46PM
Anyone see this?
http://www.marketwatch.com/news/story/oxford-funding-buys-27-billion/story.aspx?guid=%7B31C095D1%2DB6C8%2D44A2%2DB550%2D534CC2C880C6%7D&siteid=yhoof
(it's actually $2.7 million.)
Posted by Anominous , Feb 12, 2008 3:52PM
I am hearing that they are still laying in the weeds. Another 40bps widening today. Although there is some liquidity--stuff is getting bought.
3:30, you may be right, but the technical overhang is scary.
3:03, thanks for all that new information.
Posted by Gin&Tonic , Feb 12, 2008 3:53PM
@Girly Girl
LIBOR at 300 bps right now, doesn't force most triggers on TRS lines. LIBOR dropping like a shit from heaven just makes it that no one is even looking at a primary deal without a LIBOR floor. It's the fact that when your equity drops 25-40% in a month, that's what forces you to drop what you have and run.
@ Anon 3:30
Nothing sizable. Only people allowed to open their wallets right now are the distressed players, and they don't want to double-down on something that can drop another 5 points the next day.
Everyone is just looking for the floor, and we won't know until all of the forced portfolio sales are over and done with.
Posted by , Feb 12, 2008 4:19PM
thanks, yeah we had a couple BWICs out today and only got mostly throwaway bids and a few real nibbles but basically all insulting prices
Posted by , Feb 12, 2008 4:28PM
Whats the difference between a BWIC and a bid wanted?
Posted by Gin&Tonic , Feb 14, 2008 11:08AM
Haven't heard of just a "bid wanted." Then again I'm not a secondary guy, so I'm not tied to the markets.
It's interesting what happened to the ax can deal.
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