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With equity returns under strain, managers would do well to slow the pace of CLO issuance
Issuance has kept going by giving investors just what they want
John Healey resigned because the money was not there for defence. It may not be there for anything
Bifurcation is emerging in how investors treat the hyperscalers
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It would appear to be a clear example of heightened political risk for investors when televised remarks by a country’s prime minister lead to one of his country’s leading companies losing one third of its market value in a matter of days. But that is what has happened in Russia and yet leading international bankers are still extolling the county’s investment opportunities and trying to pretend that nothing has changed.
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The US Congress took a dangerous step last week when a bill aimed at shoring up the municipal bond market was approved in its committee stage. While the thrust of the legislation will be broadly welcomed, it could herald a new era of political interference in credit ratings — a very dangerous step.
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Politicians and commentators rail that Northern Rock is an ever-worsening drain on the UK’s public purse. This is true up to a point — loan quality is deteriorating at a worrying pace. But much of the bank’s £585m loss is caused by the Bank of England charging a whopping interest rate on Northern Rock’s £21bn of emergency funding. Taxpayers are getting their money back as fast as could possibly be expected.
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Like Tantalus, forever reaching out for fruit which seems to be achingly close, but never quite within reach, the Icelandic banks, Glitnir, Kaupthing and Landsbanki, have been driven to distraction by the rating agencies. Each time the agencies ask for something, they do it — only to be told that now they must jump through a new hoop.
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Europe’s loan market is still capable of funding big deals — but these transactions are not easy, and lending appetite is still constrained. Bankers are angry, therefore, at a new form of ill-discipline they believe has crept in to this normally civilised market. This is the ‘bait and switch’, in which banks offer borrowers a low rate to win the mandate, only to put it up before launch.
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Yet another deal pulled from the leveraged loan market is hardly a positive sign but the decision to withdraw the Eu620m deal for UK chemicals firm, Ineos, last week doesn’t spell gloom for the LBO sector. It merely confirms what was already known: the main factor that determines a deal’s success at the moment is the borrower’s sector.