Loan market in 'disarray' after Harrah's upset

[flashl]

The leveraged loan market begins the week in "disarray" following the collapse of efforts to syndicate $14bn of the debt used to finance the $27.8bn buy-out of Harrah's Entertainment, bankers say.

The group of banks backing buyers Apollo Management and Texas Pacific Group are having trouble selling on the leveraged buy-out debt to third parties. With the bulk of the debt remaining on their books, the banks are sitting on a sizeable loss.

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Virtually every loan-backed buy-out deal done in the past few months is trading well below 90 cents on the dollar. With most investors concluding that the bottom is not yet in sight, there is little sense that the current level is a bargain. The prospect of massive losses took its toll on the group of banks arranging the Harrah's financing.

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"The market is in total disarray," said the head of debt capital markets at one major Wall Street firm. Another senior banker involved in the deal added: "The last 10 days have been the worst ever. There is a complete buyers' strike."

Financial Times

[phantom power]

1. "buyers' strike!" -- Damn those buyers for not buying our shitpile!

[CGowen]

2. So the Fed contributed to it with the 1.25 % rate drop, I hope they haven't killed the WSOP

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Ironically, the Federal Reserve's dramatic 1.25 percentage point cut in interest rates in January contributed to Harrah's problem, because loans are floating rate and with benchmarks such as Libor dropping, returns to investors fall proportionately.

The Fed rate reduction also meant lower returns on earlier deals to finance the mega buy-outs of the last few months, including the loans on deals such as First Data and Alltel.

The fate of the Harrah's financing had little to do with the company itself.

Harrah's has $6bn of equity, making it less highly leveraged than many other buy-outs. That is one reason Goldman Sachs' mezzanine fund swooped in and bought $1.2bn of Harrah's bonds.

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