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Sunday, August 26, 2007

Home Depot Unit: $1.8 Billion Haircut

by Calculated Risk on 8/26/2007 08:35:00 PM

Update: For those without access to the WSJ, the NY Times has the details: Home Depot Unit Sold for Far Less in Tight Market. And this great anonymous quote:

“Study what just happened here. You’ll see this movie again soon.”
The WSJ is reporting that Home Depot has agreed to a $1.8 Billion haircut on the sale of their supply unit. See the WSJ: Buyout Firms Reduce Price For Home Depot Unit to $8.5 Billion. The initial price was $10.3 Billion!

The buyout firms that agreed to buy Home Depot's supply unit a few months ago have slashed the price of the deal to $8.5 billion ...

... the Atlanta-based retailer is guaranteeing $1 billion of the debt and will take an equity stake. By guaranteeing part of the debt, Home Depot will enable the banks to avoid marking down the entire value of the debt on their own balance sheets ...

With a deluge of even-bigger upcoming deals, worth upwards of $400 billion, the stakes for both sides were too great ... the banks were so desperate to avoid taking a hit on the debt that they offered to pay the private-equity firms' $300 million "walkaway" fee to Home Depot if the deal was scuttled.
Just a few days ago, the Home Depot's haircut was reported to be $1.2 Billion. This shows just how desperate Home Depot was to sell the unit.

I believe these pier loans (failed bridge loans), getting stuck on the balance sheets of the IBs, is a significant part of the current liquidity crisis. And it appears this is just the beginning ...