Thursday, July 26, 2007

LBO's Becoming An Endangered Species

In business news...

Citigroup is one of the banks that will ... be left holding the bag after investors took a pass on the sale of $10 billion of loans at Chrysler’s auto unit for the company’s leveraged buyout. ... It isn’t good news for either the banks or the buyout firms. There will come a point, if we aren’t there already, when banks refuse to make new loan commitments....

Chatter among investment bankers lately has focused on Citigroup, which is said to be clamping down especially hard on making new loans. ... Citi has the misfortune of having been involved in a lot of the buyout loans that have soured lately, including Allison Transmission, U.S. Foodservice, Dollar General and ServiceMaster. It also has a role in three of the coming megadeals that still need to be financed: First Data, TXU and Clear Channel Communications.

This has serious implications for LBOs and for the KKR's of the world who gin up these deals, and may end in some serious re-pricing of buyouts.

Which is to say that 'asset-deflation' may be underway in this marketplace, just like in housing.

1 comment:

m.z. forrest said...

The market fugly today. Yesterday was not picnic either. I think we could be looking at a 10% haircut before this thing is done.