Bulls In The Spotlight, Bears On The Sidelines

October 22, 2007

Traveling across the rolling plains of central Spain, or through the desert in the south, they appear over the horizon, and for a quick moment, you'll believe them to be real. Los Toros de Osborne - giant, black, bull-shaped billboards - stand proudly along Spain's highways, a fun mix of kitsch and national pride.

And like them, the bulls at the Loan Syndications and Trading Associations' annual conference last week were easy to spot. They sat in the spotlight, assuring attendees that while the market had hit a rough patch this summer, the future does indeed look bright.

Now I don't completely disagree with this outlook; there are plenty of reasons for optimism. A strong supply of midmarket deals is working its way through the deal machine, and of course there are the pieces of megadeals like First Data and TXU getting done. Panelists last week also pointed to investors such as hedge funds and high yield bond managers stepping into the shoes of the CLOs, and, moreover, many seem to feel the CLOs' won't stay gone for long.

The thing that strikes me, however, is the stark contrast between the optimism I saw on stage last week (Bob Franz, co-head of loan sales and trading at Credit Suisse, predicted that the market would be back to par in early 08, for example) and the opinions I heard on the sidelines, as well as those we hear from sources regularly. (Look no further than our front page stories by Matthew Sheahan and Richard Kellerhals for examples of this.)

The market still worries that bankers will become overconfident; the ratings agencies are predicting defaults; and one ratings agency source I spoke to pointed to the abundance of B3 (and lower) paper out there, which could very likely mean a sticky situation if the economy slows, as some say it will.

Bankers are eternal optimists by nature - panelist Bram Smith of Bear Stearns favors the designation "some of the biggest sunshine boys on the planet," which he directed at fellow panelists Jonathan Calder of Citigroup, Tom Newberry of Credit Suisse and Gene Martin of Morgan Stanley. And they see it as their job to build confidence in the market to help keep it moving, which is without a doubt a good thing.

I just hope that confidence doesn't evolve into cockiness and that, unlike Los Toros de Osborne, the loan market bulls keep it real.

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