Monday, June 11, 2007

Loosened credit standards now = failure later

Credit magazine's June email alert pointed out that a "study of more than 7,000 syndicated loans over the past 10 years from Fitch Ratings found a sudden drop in covenant protection in 2007. Just 52% of loans in the first quarter of 2007 had any guarantees at all in place – down from 68% in 2006 and 80% in 2004"...the newsletter author posits that "with a small handful of private equity firms now powering so much investment banking business, banks are being coerced into providing covenant-lite financing for them...banks are increasingly selling on these loans: they’re not the ones holding the risk any more"...the private equity people and the banks are mainly interested in the deal fees at this point, it seems...that they are able to sell this kind of debt shows how needy for yield bond investors are these days...

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