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BCYIF Ishares PLC (PK)

10.4293
0.00 (0.00%)
18 Jun 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Ishares PLC (PK) USOTC:BCYIF OTCMarkets Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 10.4293 10.4293 10.4293 0.00 01:00:00

EXTRA CREDIT: Banks Are Reopening The Tap On Leveraged Loans

09/11/2009 8:27pm

Dow Jones News


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Barclays Capital, Deutsche Bank and RBC Capital Markets will stump up $1.65 billion in financing for the leveraged buyout of Northrop Grumman Corp.'s (NOC) TASC consulting unit by General Atlantic LLC and Kohlberg Kravis Roberts & Co.

The deal is the latest merger financing in the leveraged loan market, which has been reborn as banks' appetite for risk grows--especially when willing investors quickly take the debt off the banks' hands.

"Success is a great confidence booster," said Steven Miller, managing director of the Standard & Poor's Leveraged Commentary and Data unit.

Renewed interest in making new leveraged loans--those made to companies with below-investment-grade credit ratings--has been driven by a stunning rally in the price of existing debt. The Barclays Capital Loan Index, for example, has generated positive returns in every month of 2009 and is up a record 48.9% for the year. The success has lured borrowers and investors back to the table, and banks are eager to meet the renewed demand.

The market had been dormant for two years after the subprime-mortgage market cratered and investors shied away from risky assets, such as leveraged loans and high-yield bonds. That retreat left investment banks like Deutsche Bank saddled with of billionsdollars of loans to sub-investment-grade-rated companies.

As a result, sales of new leveraged loans plunged to $153 billion last year from $535 billion in 2007 and $480 billion in 2006, according to data from Standard & Poor's LCD unit. Sales of new leveraged loans slowed even further this year--the total so far is roughly $30 billion--but analysts expect to see them increase again in 2010.

To be sure, much of the activity in the market for this type of debt this year has come from debtor-in-possession financing for companies reorganizing under bankruptcy protection or from companies increasing the size of their existing facilities. Those are hardly bullish signs.

But confidence is the economic recovery is rising, leading to an uptick in mergers and acquisitions, and in leveraged buyouts. If this continues, analysts at Barclays Capital led by Bradley Rogoff estimate that sales of new leveraged loans are likely to top $32 billion next year.

Banks are increasingly eager to lend to sub-investment-grade companies, as long as they can find fund managers willing to take the debt off their hands.

"You shouldn't confuse lending and syndication," said Mark Pibl, managing director of high-yield and leveraged loans at NewOak Capital in New York. "Investors are increasingly willing to buy these deals, though banks still don't want to hold this risk on their balance sheets for too long."

Barclays Capital's forward calendar stands at $4.1 billion. That excludes the $1.65 billion backing the takeover of Northrop Grumman's TASC consulting unit, but includes $625 million of loans for RehabCare Group Inc.'s (RHB) acquisition of Triumph Healthcare LLC and $2.85 billion for Denbury Resources Inc.'s (DNR) purchase of Encore Acquisition Co. (EAC).

It also includes $3 billion in loans for TPG Inc.'s and CPP Investment Board's $5.2 billion takeover of IMS Health Inc. (RX), the biggest buyout so far this year.

For investors, like Pibl, scooping up leveraged loan deals is a no-brainer. "They are better structured than in the heyday, and returns are in the high teens," he said.

Even so, banks may be comfortable about investor demand, but they are still likely to take a prudent approach to lending for the time being.

"There is a very low risk type of credit emerging in the market place right now. Although it (the leveraged loan market) is showing signs of life, it's clearly credit specific," said a leading leveraged loan banker at a major investment bank, who wished to remain anonymous.

"We are still in a non-growth recovery and there is no job creation, so we'll see transactions where it makes sense," the banker said.

(Kate Haywood writes about high-yield and distressed debt for Dow Jones Newswires. She can be reached at 212-416-2218 or by email at kate.haywood@dowjones.com)

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