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Tuesday, June 26, 2007

LBO Debt Market Changing

by Calculated Risk on 6/26/2007 11:50:00 PM

From the WSJ: Bonds Becoming a Tougher Sale

Investors issued a resounding 'No' to a leveraged-buyout debt offering yesterday, leaving banks holding the bag for more than $3 billion and raising concerns about the changing economics of the takeover boom.
Underwriters pulled a $1.55 billion bond offering by U.S. Foodservice, the nation's second-largest food distributor. The company also postponed plans to sell $2 billion in loans to fund the deal, according to people familiar with the matter. For now, the banks involved in underwriting the deal will have to lend the $3.6 billion directly to U.S. Foodservice, which is being bought from Royal Ahold NV of the Netherlands.
The pushback comes at a challenging moment. Investors are looking ahead at $250 billion of new debt coming to market in the coming months. Just this week, Chrysler Group, which is being sold by DaimlerChrysler AG, began marketing a debt fund raising that will total more than $60 billion.
From the NY Times: Delay in Buyout Bond Sale
This week, two other buyouts, the $4.7 billion deal for ServiceMaster and the $6.9 billion sale of Dollar General, are expected to price their bonds.
It will be interesting to see what happens to these other bond sales. The WSJ noted that ServiceMaster reduced it's "payment in kind" feature, so maybe that sale will be OK.