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March 14, 2005
Credit. Credit. Credit
From FT
Growing fears credit boom may implode
By Dan Roberts and David Wighton in New York and Peter Thal Larsen in London
Published: March 13 2005 21:42 | Last updated: March 13 2005 21:42
Unusually loose lending conditions have encouraged record borrowing by speculative-grade companies, with leveraged buy-outs and debt refinancing on both sides of the Atlantic generating more than $100bn of deals in the past eight months.
But last week's fall in the price of US Treasury bonds, coinciding with signs that bankers are struggling to complete riskier corporate bond issues, has added to a sense of nervousness in some quarters.
Although corporate default rates remain low, some fear the legacy of recent private equity buy-outs and hedge fund investments in distressed debt will be a swath of over-leveraged companies ill-equipped to survive in less benign conditions.
PwC, the largest corporate recovery adviser, said it was hiring insolvency specialists in sectors such as retailing, utilities and telecommunications in preparation for the expected fall-out.
Hmmm, wonder if one should become an insolvency specialist.
Last week, the Financial Stability Forum, a group of national and international central banks and regulators, pointed to the levels of liquidity as one of the main risks to the stability of the global financial system.
Following a meeting in Tokyo, the FSF said that, according to some of its members, tight credit spreads and low long-term interest rates suggested some in the market might be underpricing risks. ....
Might be underpricing risks. Frankly, I don't think anyone rational can doubt that the market IS underpricing risks. How much, well that's an emperical question, right? However, I truly do dare anyone to advance a rational argument for current pricing given the risks.
Posted by The Lounsbury at March 14, 2005 09:44 AM
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Jan-July 2005
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