Deutsche Bank seeking to sell $20 billion in debt Credit Suisse may write down up to another $5 billion
LONDON (MarketWatch) -- European banks are facing another round of losses from the credit crisis, with Deutsche Bank looking to sell as much as $20 billion of leveraged-buyout debt and Credit Suisse expected to write down as much as $5 billion in the first quarter, according to media reports.
http://www.marketwatch.com/news/story/story.aspx?…
Is this the end for leveraged finance? What's up with those planning to start there and with those already in???
There is decent activity going on Lev Fin at other BB banks since I have friends at various banks who work in the space -So I wouldn't worry too much.
DB/CS are facing severe issues and is just a small anomaly really to what other banks are facing.
This can't signal the end of leveraged finance, but clearly private equity firms are going to have a really tough time raising capital from now on. I guess five or six years down the line, PE may not be as a hot field as it is now. It may not even be considered a decent exit opp.
How are placement agents doing now? Are PE firms having to use them more to help raise capital?
I'm not sure how you're inferencing that DB trying to offload debt is the end of leveraged finance. The reason they are trying to offload the debt is because of two reasons:
1) Over the past year, several large credit funds have been raised by hedge funds, private equity, and (obviously) distressed and leveraged loan players (i.e. Madison Capital, etc.)
2) DB unloading some of the debt to these vehicles (especially PE), frees up the ability to underwrite MORE debt, so if they are successful in garnering a respectable bid/ask for the hung bridge loans and leveraged loans, they should be in a position to underwrite new loans...bringing the leveraged markets back
So no, this is not the end of leveraged finance.
JPM lev fin shop will be restructured and significantly downsized within the next few weeks.
The interesting part is looking at the loans Citi sold last week. Lets see, Citi financed Apollo buyouts and now Apollo is buying that debt off Citi's books for 80 cents on the dollar...my money says Leon Black is about to make clean up because he knows exactly what that debt is worth and isn't pulling out all the stops to raise capital like Citi
Citi and DB are preparing for the bank and the bond they have to take on if/when CCU and BCE close. lev fin said they are in those deals to the tune of ~35-40bn.
interestingly, these funds are buying in the low 80s plus yield, so they are often locking in, assuming no defaults, 20-25% returns for the debt on the same assets that they often were in auctions to buy.
The Citi deal was pretty decently levered, didn't hear anything about the DB deal yet.
To add on to GameTheory's post, the bids for DB's and Citi's hung deals adds more liquidity to the market. Unlike in mortgage land where there are no reasonable marks.
These are all positive signs for the market, and as a result both lev & hy markets have been bidding up.
These banks have no lending capacity. Their shareholders are diluted to death, and their balance sheets are still beleaguered.
That DB/C whomever are unloading loans for as low as 63 cents on the dollar (Chrysler) is proof positive of the end of the lev fin environment.
Look at CLO issuance. Wait, what issuance? THAT is who used to buy loans.
You sure these banks are offloading debt to underwrite more debt? Doesn't seem quite right. They are selling the paper at steep discounts, so I'd be more inclined to believe they are selling of these highly risk weighted assets to improve regulatory capital.
It's not a 1 for 1 situation where every dollar freed becomes a dollar of liquidity in the marketplace for these banks. They are offloading these loans to put themselves in a position to be able to begin underwriting again sooner. There's a giant backlog that needs to be taken care of, so sometimes you just need to take your medicine and stop the bleeding.
Desecrato, I'm not sure why Chrysler is indicaative of the whole market. It's like saying last week, when GE dropped 15%, that the market droppped 15%.
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