The leveraged loan market begins the week in âdisarrayâ following the collapse of efforts to syndicate $14bn of the debt used to finance the $27.8bn buy-out of Harrahâs Entertainment, bankers say. The group of banks backing buyers Apollo Management and Texas Pacific Group are having trouble selling on the leveraged buy-out debt to third parties. With the bulk of the debt remaining on their books, the banks are sitting on a sizeable loss.
* Services * Email briefings * Email alerts * Portfolio * Currency converter * Jobs Harrah's debt syndicate setback leaves loan market in 'disarray' By Stacy-Marie Ishmael and Henny Sender in New York Published: February 4 2008 02:00 | Last updated: February 4 2008 02:00 The leveraged loan market begins the week in "disarray" following the collapse of efforts to syndicate the debt used to finance the $17.1bn buy-out of Harrah's Entertainment, bankers say. The group of banks backing buyers Apollo Management and Texas Pacific Group are having trouble selling on $14bn in loans and bonds to third parties. With the bulk of the debt remaining on their books, the banks could be left with a sizeable loss. Virtually every loan-backed buy-out deal done in the past few months is trading well below 90 cents on the dollar. With most investors concluding that the bottom is not yet in sight, there is little sense that the current level is a bargain. The prospect of massive losses took its toll on the group of banks arranging the Harrah's financing. Credit Suisse, under pressure to get its lending exposures down, sold about $1bn of its share of the debt ahead of the agreed schedule, infuriating the other banks. Credit Suisse informed fellow members of the syndicate of its intention in early January, according to one person familiar with the matter. "There is no contractual obligation," this person added. "We cannot concede control over our own capital." That may be the pattern in future deals. "The Harrah's precedent frees other underwriters to deal with situations as they see fit," noted Standard & Poor's Weekly Wrap. "The market is in total disarray," said the head of debt capital markets at one major Wall Street firm, while another senior banker involved in the deal added: "The last 10 days have been the worst ever. There is a complete buyers' strike." The utter freeze in the debt market means the banks now face larger potential losses on other big buy-out deals - such as BCE and Clear Channel Communications - and will be more desperate to get out of the financing commitments on those deals. Banks are already saddled with more than $150bn of unsyndicated debt, most of it LBOrelated, according to S&P data. "It's very hard to see an environment where that overhang of debt is going to be cleared anytime soon," Kingman Penniman, president of KDP Investment Advisors, said. "But it does look like some of the bigger deals might not get done."
Obviously this is very good news. Let's work out all of this hubris and excess from the system, and start fresh. This was a stupid purrchase by the GPs, and they should be hung out to dry as a result.