Wednesday, February 6, 2008

More problems in Credit Land

LBO loans on bank balance sheets are selling at less than .90 cents a dollar. Here's some examples: First Data loans are selling at .88 cents on the dollar, Freescale Semiconductor at .84, Tribune at .74.

Double-digit declines in the market value of these loans are very unusual, and a big problem for many banks, which sit on a pipeline of $152 billion in loans that they have promised to make but have yet to sell to investors.

With the prices of existing loans tumbling, investors have little incentive to buy new loans unless they are sold at steep discounts, something banks are reluctant to do.

The result: More assets building up on bank balance sheets, growing tensions among rival bankers who had grown accustomed during the buyout boom to cooperating with each other and a deepening crisis in the market for buyout debt.

Problems exist also in muni land:

At least six sales of tax-exempt auction-rate securities -- one of them by Georgetown University in Washington, D.C., and all insured against default -- failed to draw sufficient investor interest the past two weeks. Trouble in this $250 billion market could mean higher financing costs for governments, just at a time when they are already facing slower revenue growth as the economy weakens.

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