For all the talk about crashing mortgage backed securities, there has been little discussion of the increasingly shaky foundation of loans for leveraged buyouts. This subject hasn't gotten as much press as the mortgage issue, likely in part because it is a less populist story. And so, when an article on Goldman's massive hedge fund losses crosses the wires at Bloomberg, CLO writedowns get a single line, buried in the middle of the piece.
Moszkowski also estimated that Goldman will write down its leveraged loan portfolio by $1.3 billion in the quarter because of a drop in that market.
Still water runs deep?
Goldman to Post Loss in Fourth Quarter, Merrill Says [Bloomberg]
Posted by guest , Nov 04, 2008 9:52AM
everyone is equal but some are more equal and others
Posted by guest , Nov 04, 2008 9:53AM
its no secret that some leveraged buyouts are suffering heavily (see kkr writedowns) and inevitably some will go bust. the good news though is that loose or nonexistant covenants give the companies and pe firms more breathing space and reduce the nr of defaults. currently leveraged loans are trading ridiculously low, hence the writedowns
Posted by guest , Nov 04, 2008 10:01AM
Hasn't been reported? I think everyone and their mother knows that 1st lien loans are trading in the low 70s. And there is more CLO puking to come.
Posted by guest , Nov 04, 2008 10:03AM
NO WAY! WE LANDED ON THE MOON!
Posted by guest , Nov 04, 2008 10:07AM
#3...in the mid 60's now....the biggest hit was in September and October, but prices seem to be firming up a little (maybe that's because you can buy 1st Liens that will yield in the high teens to low 20's now with zero leverage.)
Posted by guest , Nov 04, 2008 10:12AM
@4 you crack me up
Now GTFO there and vote
Posted by guest , Nov 04, 2008 10:21AM
4 here. there's an election today?
Posted by GinNTonic , Nov 04, 2008 10:34AM
Come on EP, none of these guys have any maintanence covenants and all of have have PIK toggles on the senior uns. So we won't know if there's a fire until the whole place burns down.
Posted by guest , Nov 04, 2008 10:39AM
Wow, what's with the informed and rational comments today? Are the usual idiots out rioting at poll stations? Maybe TGFD got hit by a bus.
Posted by guest , Nov 04, 2008 10:49AM
@9 that would be great, preferably by the straight talk express
@8 actually PIK toggles are quite rare and existed only for part of 06 and most of 07. Most firms do not have more than then a couple of those in their portfolio
Posted by guest , Nov 04, 2008 10:50AM
Has anyone thought about what is going to happen to these PE deals that have little in the way covenants and lots of leverage, but where the equity is clearly underwater (so......all of them from 2006 and 2007, probably), and yet there is no danger of default for at least another 12-18 months. Doesn't that give incentives for the sponsor and management to take risks to try and recoup their upside that might run counter to the interest of the lenders and impair recoveries?
Posted by guest , Nov 04, 2008 10:57AM
@11
lenders schmenders.. Most of that (06/07)deals will just try to ride out the storm, survive the next 12-18 months and exit as soon when the market improves. When your goal is to not run out of cash you dont take risks, you just sit still, cut cost, and if possible sell off assets (that last part is a risk for lenders indeed)
Posted by shalimar , Nov 04, 2008 11:00AM
Aren't these akin to the C&I loans held by the regional banks?
Granted, the credit quality may differ. But Wells & Co are carrying these on their books at 98 vs a market price of 65.
Posted by GinNTonic , Nov 04, 2008 11:01AM
@10
I agree there were not a lot PIK toggles in the grand scheme of HY bonds in '05/'06/'07. But the topic is on LBO-related HY bonds, and the % of LBO HY paper with PIK toggles is much higher than the overall HY paper with PIK toggles.