A recent headline, "Trainwreck", in a daily market roundup
published by Standard & Poor's overstates the state of the
debt financing markets in the US and Europe. But not by much.
After several years in which debt financing was readily
available on attractive terms to private equity funds and other
corporate borrowers, the debt markets have taken a sharp
The decline follows a slowdown in the market for
collateralized debt obligations (CDOs). CDOs have been active
investors in the debt issued to private equity funds and
strategic buyers in acquisition financings. S&P estimates
that, until recently, CDOs purchased 60% of the loans made to
finance US acquisitions. This ready availability of capital
made it much easier for lead arrangers in bank financings to
find buyers for the debt they had committed to provide.
Typically, in a leveraged acquisition financing, a bank will
commit to provide large...