Can Your Stomach Stand A Little Good News?

March 10, 2008

But seeing as I do have a duty to report the goings on in the world of leveraged finance, I'm just going to have to risk it. So those of you with weak stomachs, proceed with caution because, as much as your system may have become unaccustomed, you actually have a bit of good news coming at you.

Standard & Poor's LDC last week released its latest update on the size of the leveraged loan forward calendar. And while it may come as no surprise to market watchers like yourselves that the banks have been slowly but surely chipping away at the famed overhang, actual numbers normally add a bit of perspective.

As of March 5, the calendar totaled $131 billion, down from $139 billion on Feb. 27, $147 billion on Feb. 20 and $163 billion at the beginning of the year. This change in the forward calendar "reflects continued active selling in large, previously funded transactions," according to S&P LCD.

In a market where a year ago a couple of quick deals could equal $30 billion, that amount in a little more than two months may seem more like meatball-sized good news rather than T-bone-sized. But under current market circumstances, it's a fairly significant reduction. Not to mention that seeing the overhang, which has weighed heavy on the leveraged finance markets since mid-2007, continue to shrink bodes well for the market psychologically.

How banks have gotten through some of this debt hasn't always been pretty-with the "every bank for itself" law of the debt market jungle emerging. The tale of a certain Swiss bank breaking ranks with its syndication partners and selling its share of more than one deal early has certainly grabbed headlines in recent weeks. (Though I'm told it has not been alone in its "any which way you can" mentality of deal making.)

But while these sort of tactics may anger partnering banks, the investors I spoke to last week didn't seem bothered by it. "I don't think it's a bad thing for the buyside," one investor said. "It creates opportunities for us."

Added another, "It's not surprising. Everyone's concerned about risk and clearing out their backlog. Actually ... it's surprising it didn't happen sooner."