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Post by jeffolie on Jul 17, 2007 9:30:24 GMT -6
Goldman, JPMorgan Stuck With Debt They Can't Sell to Investors By Caroline Salas and Miles Weiss JPMorgan logo July 17 (Bloomberg) -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of Wall Street are stuck with at least $11 billion of loans and bonds they can't readily sell. The banks have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month because of the worst bear market in high-yield debt in more than two years, data compiled by Bloomberg show. Bankers, who just a few months ago boasted that demand for high-yield assets was so great that they would have no problem raising debt for a $100 billion LBO, are now paying for their overconfidence. The cost of tying up their own capital may curb earnings and stem the flood of LBOs, which generated a record $8.4 billion in fees during the first half of 2007, according to Brad Hintz, the former chief financial officer at New York-based Lehman Brothers Holdings Inc. ``The private equity firms, being very tough negotiators, are unlikely to let the banks off the hook,'' said Martin Fridson, chief executive officer of high-yield research firm FridsonVision LLC in New York. ``They'll say that's your problem and that's why we're paying you: To take risk.'' The underwriters are going to be forced to provide bridge loans and it's getting pretty ugly, but Wall Street deserves to get smacked around a little,'' said William Featherston, managing director in high-yield at J. Giordano Securities LLC in Stamford, Connecticut. ``It's been easy for so long.'' www.bloomberg.com/apps/news?pid=20601087&sid=aserXf4f8u2M&refer=home
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Post by unlawflcombatnt on Jul 17, 2007 13:57:51 GMT -6
Jeff,
This was an interesting article. The article makes a major point about financing LBOs. I wonder if you can clarify something for me.
If investment banks (JP Morgan, Bear Stearns, et al) agree to finance an LBO without any escape clause, and they fail to sell enough securities to finance the LBO, then they must sell off their own assets (or use some of their own capital to complete the financing).
Is that how it works?
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Post by jeffolie on Jul 17, 2007 14:39:27 GMT -6
Yes
Or, the investment bank can get a loan and then reloan the money to finance the LBO. Bear Stearns did this reloaning to create a loan to its hedge fund.
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Post by jeffolie on Jul 17, 2007 15:36:34 GMT -6
The sun is shining on the stock market, but the bankers financing big leveraged buyouts are fretting over changes in an obscure corner of the debt market. Investment banks like Goldman Sachs (GS - Cramer's Take - Stockpickr - Rating), Merrill Lynch (MER - Cramer's Take - Stockpickr - Rating), Morgan Stanley (MS - Cramer's Take - Stockpickr - Rating) and Lehman Brothers (LEH - Cramer's Take - Stockpickr - Rating) have been handing over billions of dollars in so-called bridge loan commitments to buyout-happy private-equity shops. Bridge loans are hardly lucrative for investment banks -- they are not usually even drawn down. Instead they serve to "bridge" the gap between the announcement of a buyout by the likes of Blackstone Group (BX - Cramer's Take - Stockpickr), Kohlberg Kravis Roberts and TPG Capital and the receipt of permanent financing. But with the debt market having soured recently for leveraged buyouts, banks are starting to worry that private-equity shops might opt to actually draw upon these hefty loans -- possibly leaving the banks with billions of unwanted loans on their books, unless they can syndicate them out to buyers including hedge fund investors. www.thestreet.com/s/bridge-loans-leave-bankers-quaking/newsanalysis/wallstreet/10367879.html?puc=_dm
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Post by judes on Jul 17, 2007 16:57:29 GMT -6
The sun is shining on the stock market, but the bankers financing big leveraged buyouts are fretting over changes in an obscure corner of the debt market. Investment banks like Goldman Sachs (GS - Cramer's Take - Stockpickr - Rating), Merrill Lynch (MER - Cramer's Take - Stockpickr - Rating), Morgan Stanley (MS - Cramer's Take - Stockpickr - Rating) and Lehman Brothers (LEH - Cramer's Take - Stockpickr - Rating) have been handing over billions of dollars in so-called bridge loan commitments to buyout-happy private-equity shops. ....... Oh this scares me. I admit I don't know alot about the stock market, but I have a sinking feeling all this debt, or the fallout from the Mortgage backed securities, is going to get passed off somehow to unsuspecting holders of 401k stock plans. Because most like myself are not versed in the ways of the street. We just have a set amount of money automatically deducted from our checks twice a month that goes directly into the 401 k plan, with very limited knowledge of what it is. Two of the Investment banks (1st two) you mentioned above are involved in financing the buyout of the bankrupt company I am currently employed at (Delphi). Just last month they wiped out all our old 401k investment options and replaced them with a much more limited choice of investment options. Each one has a brief 2 sentence description of what the fund option is. In many I noticed in small print the words ARM, MBS, payment in kind, subprime etc. Red flags went up for me. They have already limited the amount of times we can move money between funds to only a couple times a year. Why do I get the feeling these unwanted investment options are going to end up in the 401k holdings of many unsuspecting employees? Is this possible?
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Post by jeffolie on Jul 17, 2007 17:13:55 GMT -6
judes
The devil is in the details of your particular 401k. The poor employees at Enron got creamed with their pensions and 401k s.
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Post by Ken on Jul 18, 2007 9:42:54 GMT -6
The sun is shining on the stock market, but the bankers financing big leveraged buyouts are fretting over changes in an obscure corner of the debt market. Investment banks like Goldman Sachs (GS - Cramer's Take - Stockpickr - Rating), Merrill Lynch (MER - Cramer's Take - Stockpickr - Rating), Morgan Stanley (MS - Cramer's Take - Stockpickr - Rating) and Lehman Brothers (LEH - Cramer's Take - Stockpickr - Rating) have been handing over billions of dollars in so-called bridge loan commitments to buyout-happy private-equity shops. ....... Oh this scares me. I admit I don't know alot about the stock market, quote] Trust me. not alot of people do. Much of this is common sense and I have a good example. I have a 401K and some investments outside of that. I am a buy and hold kinda guy simply because I dont believ in stock picking. A dartboard is as successful as most stock pickers. That being said yesterday Novellus. a stock that I bought for a little above 20 a share a few years ago, rose 11% yesterday on an earnings announcement so I looked at it. Y on Y operating margins were flat...no spectacular news to justify the runnup other then they hit earnings and rev projections. So I sold it and sure enough it has already fallen 4% today. So if I know that and I can read a financial statement, what the hell is going on. I suspect that we hit a strike price. we are right back to where we were 6 or 7 years ago. The retail numbers were horrible. Bear Sterns is just a tip of the berg. and we had a 250+ runnup. Have we learned nothing. One thing is for sure..I am not going to become a daytrader. Life is too short
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