The credit crunch has left many banks with large amounts of debt on their balance sheets. The traditional investor pool of banks, hedge funds and CDO and CLO funds has resisted inducements to syndicate credits – original issue discount, upfront fees, Libor floors, increased pricing, retranching debt and changing currencies (to sell into overseas markets). Secondary trading opportunities for these traditional investors, direct and indirect pressures to preserve capital, and a collapse in the securitisation market have depleted the pool for new syndicated credits and these hangover credits. So banks are looking for alternative exit strategies from existing credits. One possibility is allowing private equity funds and equity sponsors to purchase debt, in a departure from conventional practice.
Above the threshold
Private equity funds are taking advantage of the steep discount, pricing increases and other incentives being offered to purchase large positions in 2007's multi-billion dollar acquisition financings. These busted deals...