Desperate Times Make For Desperate Banks
February 11, 2008
The task of syndicating sub-investment-grade debt has gotten downright Herculean, especially on larger deals. So, like the magician who always has one more trick up his sleeve, investment banks have begun to get creative in their attempts to get debt sold.
Sometimes their efforts have met with applause, sometimes jeering. But the fact that they seem basically willing to try anything speaks to just how incredibly tough the leverage finance markets have become.
And we're not even talking OIDs and call protection on loans-those sorts of investor perks have become a given. Finding a new loan issue, even a smaller one, that has priced at par in recent weeks is like discovering the few talented souls on American Idol. Maybe they exist, but they are one in 10,000.
Now, banks have moved on to offering Libor floors to compensate for the decreasing Libor rate, and some market participants expect to see first-loss takeouts and liquidity wrappers come into play, as our page one story by Richard Kellerhals shows.
But wait. These offerings constitute just your basic tricks, not the sleight of hand these challenging times seem to demand. To find true feats of illusion, we look to a couple of specific deals.
Feat No. 1: The underwriters on the $5 billion Intelsat buyout made the credit markets disappear. Or, more precisely, Credit Suisse, Morgan Stanley and Bank of America, instead of attempting to tap the tricky markets, managed to get the company's previous lenders to help out by holding on to their debt a little longer.
And No. 2: Credit Suisse-which at the moment looks to be bucking for the "most creative" award, if not Miss Congeniality-did its own disappearing act on the Harrah's Entertainment deal. As part of a consortium of banks led by Deutsche Bank and Bank of America, Credit Suisse was meant to participate in the syndication of a hunk of Harrah's debt. However, the bank broke ranks and sold $1 billion of its share of the debt early, clearly not making any friends in doing so.
A desperate act in desperate times? Have the markets deteriorated to the point that we'll see more cases of this "every bank for itself" mentality? Maybe or maybe not. But when somebody breaks out a box and a saw, we'll know things have gotten really bad.
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