Banks and private equity funds are locked in negotiation
over a $300 billion backlog of acquisition loans. The problem
is one of frustrated expectations; banks did not expect to be
holding the paper that they have committed to fund.
The backlog is tipped to put the squeeze on lending and
buyout volumes. Private equity specialists, however, cannot
agree on whether the excess of committed finance will mean an
end to covenant-lite lending and a return to more traditional
"Buyout firms are finding it much harder to raise debt for
new deals," says Phillip Mills at Davis Polk. "When liquidity
conditions improve, it is likely that both the pricing and
leverage levels will be worse for buyout firms relative to the
extraordinary terms seen over the last few years." So once the
indigestion passes, credit markets will re-price and settle
down on this continuity view. Pricing will...