Banks can avoid the 2022 -style hanging debt disaster
Leveraged-Keuangan bankers have a reasons for gloomy. Announcement of Tariff 2 April US President Donald Trump encourages loan costs for debt companies, places a new agreement in the backburner. However, scars from the chaos of the trade war market may not be as bad as the one who lingering from 2022.
Three years ago, everyone from Goldman Sachs GS to Morgan Stanley MS and BNP Paribas BNP collectively left to have around $ 80 billion in debt after the interest rate was fired and the fearful credit market. It stopped banks to dismantle the Leveraged Underwritten financial agreement to the bond and loan markets in a few weeks or months, as usual. Examples of “Hung” debt include $ 13 billion for the takeover of Twitter Elon Musk and 5 billion pounds ($ 6.6 billion) for the purchase of WM Morison’s supermarket by Clayton, Dubilier & Rice. That paralyzed the bank’s balance sheet, allowing private credit rivals to steal the parade.
The moment now has similarities, including the increase in credit spread, which refers to additional returns needed by investors for more risky debt. Distribution at BOFA ICE US and European high yield index has jumped to around 4% from under 3% in early March. Leveraged’s financial agreement has slowed down into dripping, while Citigroup and others are currently trapped with $ 2.2 billion debts that are hung for the takeover of global auto parts groups supported by Global Auto Parts Group TI by ABC Technologies, IFR News reported on Thursday.
The good news, however, is that the deposit of financing commitment is much smaller now than in early 2022, which reflects the M&A 2024 market which is calmer compared to 2021. The Leveraged-Keuangan banker told Breakingviews that the current underwritten volume is less than half the level of three years ago. Examples include financing for the purchase of Walgreens Boots Alliance worth $ 24 billion from Mitra Sycamore. So, even if the bank fails to sell any loan, the actual debt will be much smaller than in 2022.
And maybe the guarantor of emissions will be able to shift a lot of loans and bonds on schedule. The spread of credit has begun to fall in the last few days and is still far below the peak of 2022 around 6% in the United States and 6.5% in Europe. Main final investors such as credit funds, who often buy debt, do not see frightening currents, according to a banker. And the agreement is still over. On April 3, Morgan Stanley bears a sub-investment class loan worth $ 3.5 billion for the acquisition of Brookfield infrastructure colonial pipeline, only one day after the announcement of US tariffs. It also helps that the bank has cooked their own answers to personal credit, giving them extra flexibility: JPMorgan JPM alone has allocated $ 50 billion for direct loan drive, for example.
The main problem for the Leveraged-Finance market is more likely to be a slowdown in a new agreement, because the company and the purchase company sits in their hands amid the uncertainty of the trade war. It will hurt costs. However, this is better than the 2022 style problem because it is hanging out to be dried by the frozen credit market.
Source: Reuters
