Banks reduced the backlog of unsold corporate debt by 2 percent in the past two weeks to $370 billion as investor demand for leveraged loans and bonds improved, Bank of America Corp. analysts said.
Credit Suisse Group last week led banks selling $5 billion of loans to finance Kohlberg Kravis Roberts & Co.'s buyout of credit card-processor First Data Corp. Citigroup Inc. found buyers for $1 billion of loans to Allison Transmission Inc., the auto-parts supplier owned by Carlyle Group LP and Onex Corp.
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Banks returned to the market as investor confidence in high- risk, high-yield loans climbed to the highest in two months, according the benchmark iTraxx LevX Index of credit-default swaps on European loans. Goldman Sachs Group Inc., the world's biggest securities firm, Lehman Brothers Holdings Inc. and Bear Stearns Cos. all say the worst credit-market shakeout since 1998 is abating.
Banks in the U.S. and Europe still have to syndicate the equivalent of almost three-quarters of the entire $500 billion of loans held by money managers in America, according to the research published Sept. 22. First Data's banks have kept $17 billion of debt they planned selling for the Greenwood Village, Colorado-based company.
The last paragraph is key. While last week's rate cut was obviously a reason for this initial thawing, the market still has a long way to go.
Loan buyers must answer two questions.
First, there is the general soundness of the deal.
Secondly, and perhaps more importantly, is the overall economic backdrop of the deal. While a specific merger/LBO etc... may be sound, the question becomes, "can this deal work in a slowing economy?" That will be a key question going forward with all of the loan syndication that is going on. A lot of the deals straddled the participating companies with higher debt levels. Can they operate in a slower economy?
