Friday, July 06, 2007

Number Of The Day.....Covenant Lite Loans, Toggle Bonds

With an annualized increase close to 1.000 percent in covenant lite loans it is no wonder that private equity can now pay double digit cash flow multiples in their buyouts. Add this toggle number to the mix and you have the groundwork for future trouble.......

Mit einem auf das Jahr hochgerechneten Zuwachs um fast 1.000% in dieser Kreditkategorie die dem Kredinehmer keinerlei gesonderte Auflagen macht ist es kein Wunder das immer wahnwitzigere Käufe von Private Equity getätigt werden können. Beim Hilton/Blackstoen Deal wurde mal eben der 14,5 fache Cash-Flow Betrag auf den Tisch gelegt! Vor kurzem war alles über 7-8 die absolute Höchstgrenze. Wenn man jetzt noch die Nummer der Toggle Bonds hinzunimmt dann kann man erahnen was sich hier zukünftig für Propleme ergeben werden

Bonds that allow companies to pay interest in extra securities instead of cash, including toggle notes, accounted for almost 9 percent of high-yield debt sold this year, compared with less than 1 percent three yearsago

There has been a surge of lending in what bankers call “covenant-lite” loans in 2007. That means that there are no loan covenants that require the borrower to maintain specific financial ratios, as used to be standard.
In 2004, there were just $100 million of such loans. But the total rose to $2.4 billion in 2005, $23.6 billion last year and $103.9 billion in the first half of this year.
In practice, that means the companies that run into trouble need not consult their previous lenders
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4 Comments:

Blogger Edgar, AKA Mort said...

Europeans use decimal points where we use commas, I never got used to that. I had a professor from the UK who did that from habit, it always freaked me out.

On topic - the LBO grifters wouldn't be so hot to buy all this stuff for top dollar if they couldn't loot the corporation and then pass the trash off on the stupid pension funds. A "he who gets there the firstest with the mostest flipper / peddler attitude". Hopefully the pension funds will wise up before they buy any more crap securities.

9:24 AM  
Blogger jmf said...

Moin Edgar,

i also hope that at some point the big guys will stand up and refuse to buy all that crap.

I think with the subprime mess just getting started there is at least a small chance :-)

When i read stories like
this
i have the feeling that the top is very near.

But i have to admit that i have thought this several times in the past 12 month..... :-(

12:47 AM  
Blogger jmf said...


Here
another story about public money that is lost in the cdo tsunami....

2:04 AM  
Blogger berto xxx said...

There has been a surge of lending in what bankers call “covenant-lite” loans in 2007. That means that there are no loan covenants that require the borrower to maintain specific financial ratios, as used to be standard.

8:39 PM  

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