Economic Reports 07/25/07
Summary: The housing debacle continues as existing home sales plunge again. Meanwhile, the bleed into credit markets begins to extract a "risk aversion" toll.
Existing Home Sales Jun -3.8% at 5.75M vs prior 5.98M Full Report
Inside the number: 4th straight decline; hitting a five year low. Total Inventory -4.2%, but still at 8.8 months, a 15 year high and 27.9% higher than last year.
June sales: NE -7.3%; W -6.8%; MW -2.8%; S -1.7%. SFR sales -3.5% to 5.01M; YOY -12%; in Q2 -30%; the largest drop in 28 years.
Chrysler abandoned plans to sell $12B of loans to complete its purchase by Cerberus Capital Management LP after investors balked at purchasing the high yield, high risk debt.
Kohlberg Kravis Roberts & Co.'s banks, led by Deutsche Bank AG, failed to sell 5 billion pounds ($10 billion) of senior loans to fund the leveraged buyout of Alliance Boots Plc. the U.K.'s biggest pharmacy chain.
It's the first time a FTSE 100 company has been taken private and can't sell the debt.
KKR's underwriters will offer higher interest rates to sell 1.75 billion pounds of junior loans and the banks will keep the senior loans on their balance sheets.
The banks, which also include JPMorgan Chase & Co. and UniCredit SpA, will offer 1 billion pounds of second lien loans.
The banks will sell the loans at 96% of face value, using their own fee income to pay for the discount.
Interest will be at 425 basis points over the benchmark London interbank offered rate, up from 400 basis points three weeks ago.
The underwriters also plan to sell 750 million pounds of mezzanine debt at 95% of face value.
Interest on the mezzanine will increase to 650 basis points over Libor, from 600 points 3 weeks ago.
The Nattering One muses... what will happen if there are no takers for the 2nd liens or mezzanine debt? Who gets stuck holding the bag? The banks my friends...
The current debt market cuffufle not only makes private equity more reluctant to do deals but also the banks.
Banks don't want to stick their neck out and get stuck with the bridge loans.
The primary concern now is that the inability to get debt financing on agreeable terms is going to put an end to the LBO boom and suck the M&A premium out of stock prices.
Worse yet... should any recent LBO acquisition underperform in the quarters to come, say perhaps due to an "unforseen" economic downturn...
and the leveraged buyer is not able to service the bank loans with the cashflow from the acquisition or even its own coffers, then the fee greedy banks that can't offload the debt or the greedy bond holders will eat it.
We suspect there will be plenty of LBO busts in the next 3 years as the economy underperforms, and deals (which were based on lowered risk premiums in a high yield high risk environment), go sour.
Existing Home Sales Jun -3.8% at 5.75M vs prior 5.98M Full Report
Inside the number: 4th straight decline; hitting a five year low. Total Inventory -4.2%, but still at 8.8 months, a 15 year high and 27.9% higher than last year.
June sales: NE -7.3%; W -6.8%; MW -2.8%; S -1.7%. SFR sales -3.5% to 5.01M; YOY -12%; in Q2 -30%; the largest drop in 28 years.
Chrysler abandoned plans to sell $12B of loans to complete its purchase by Cerberus Capital Management LP after investors balked at purchasing the high yield, high risk debt.
Kohlberg Kravis Roberts & Co.'s banks, led by Deutsche Bank AG, failed to sell 5 billion pounds ($10 billion) of senior loans to fund the leveraged buyout of Alliance Boots Plc. the U.K.'s biggest pharmacy chain.
It's the first time a FTSE 100 company has been taken private and can't sell the debt.
KKR's underwriters will offer higher interest rates to sell 1.75 billion pounds of junior loans and the banks will keep the senior loans on their balance sheets.
The banks, which also include JPMorgan Chase & Co. and UniCredit SpA, will offer 1 billion pounds of second lien loans.
The banks will sell the loans at 96% of face value, using their own fee income to pay for the discount.
Interest will be at 425 basis points over the benchmark London interbank offered rate, up from 400 basis points three weeks ago.
The underwriters also plan to sell 750 million pounds of mezzanine debt at 95% of face value.
Interest on the mezzanine will increase to 650 basis points over Libor, from 600 points 3 weeks ago.
The Nattering One muses... what will happen if there are no takers for the 2nd liens or mezzanine debt? Who gets stuck holding the bag? The banks my friends...
The current debt market cuffufle not only makes private equity more reluctant to do deals but also the banks.
Banks don't want to stick their neck out and get stuck with the bridge loans.
The primary concern now is that the inability to get debt financing on agreeable terms is going to put an end to the LBO boom and suck the M&A premium out of stock prices.
Worse yet... should any recent LBO acquisition underperform in the quarters to come, say perhaps due to an "unforseen" economic downturn...
and the leveraged buyer is not able to service the bank loans with the cashflow from the acquisition or even its own coffers, then the fee greedy banks that can't offload the debt or the greedy bond holders will eat it.
We suspect there will be plenty of LBO busts in the next 3 years as the economy underperforms, and deals (which were based on lowered risk premiums in a high yield high risk environment), go sour.
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