High-Yield Goes on Holiday

WSJ Deal Journal, August 6, 2007, 11:34 am
Posted by Dana Cimilluca
For a little perspective on the impact market turmoil is having on borrowers’ ability to raise cash in the high-yield loan and bond markets, consider the following from Thomson Financial.
No U.S. company has raised funds in the high-yield market since July 26th, either to finance a takeover or to trade in existing debt for new paper. That is six trading sessions and counting. The last time there was a drought that long was the holiday period of Dec. 20 of last year to Jan. 8.
New high-yield issuance since the end of June totals just $2.43 billion. That compares with a first-half total of $97 billion. At the current pace, second-half issuance would be roughly one-tenth what it was in the first six months of 2007.
The last U.S. acquisition to exceed $20 billion was Blackstone Group’s $27 billion bid for Hilton Hotels (including debt) on July 3rd.
A little more than a month may not seem like a long time, but given the rapid-fire deal making private-equity firms had gotten us used to, it starts to seem like a long time. No one expects that clock to stop ticking any time soon. The narrow slit of an opening in the funding window raises again the question of how in the world all the pending buyouts (First Data, TXU, Alltel, Harrah’s, SLM to name a few) are going to get funding in the market. Also, how much longer can the default rate stay down with shaky companies forced to stand on their own two feet?