naked capitalism

Banks stuck with unsold inventory of LBO loans have maintained a fair degree of market discipline, attempting to offload the paper at favorable prices and engaging in financing the sales rather than taking bigger haircuts so as to avoid further writedowns of still-unsold paper.

The sale of LBO paper held by Iceland’s failed banks and hedge funds is expected, particularly in this tight credit environment, to fetch much lower offers than banks are using to mark similar paper. That will lead to further writedowns.

From Bloomberg:

The value of high-risk, high-yield loans slumped amid speculation more than 1 billion euros ($1.4 billion) of debt being sold includes assets seized from Iceland’s banks.

Brokers sent details of loans used to fund leveraged buyouts for sale to investors and traders, according to four people who saw the lists.

“There are several bid lists of leveraged loans circulating,” said Louis Gargour, chief investment officer at London-based hedge fund LNG Capital, who is setting up a distressed debt fund. “One is from an Icelandic bank and two are from leveraged hedge funds.”…

“There are going to be more and more leveraged loans being sold off by a variety of different investors in the coming days and weeks,” said Charlotte Conlan, head of leveraged syndication at BNP Paribas SA in London. This “will inevitably have a knock- on effect on the mark-to-market for the rest of the loan investor community,” she said.