Credit strategists in Europe say market volatility on the back of leverage buyout talk is overblown. One strategist at a U.S. house estimated last week 20% of names in the DJ iTraxx Europe are the subject of leverage buyout rumors, which he said is out of proportion with reality. Dealers said LBO chat is boosting fears of idiosyncratic market moves and adding to the problems of hedge funds long the equity tranche of collateralized debt obligations (DW, 5/2).
"Yes there will be more LBOs, but [20%] is impossible," said Matt King, director in quantitative credit strategy at Citigroup in London. "People are just spooked," he added. Analysts agreed it is clear private equity firms are investigating the market, but with market volatility rising after the downgrading of General Motors Corp. and Ford Motor Co. the increase in rumors is a knee-jerk reaction. One strategist said much of the talk about these names has come and gone in a matter of minutes and the number of corporates actually connected to leverage buyout speculation was closer to 10. This group includes retailers and ScottishPower.
