Market Malaise

From the FT($$):

Investment banks financing the purchase of US data storage group SunGard, the largest leveraged buy-out since the 1980s, are struggling to find buyers for the debt, raising fears that the downturn in high-yield markets threatens a new class of large private equity deals.

Deutsche Bank, JPMorgan and Citigroup recently began syndicating a $4bn (GBP2.09bn) bank loan, part of the financing of the $11.3bn deal, to hedge funds and other preferred investors before moving on to a formal roadshow.

But early indications of interest in the bank loan and a $3bn bridge loan that will also soon be marketed, have been lukewarm, according to people familiar with the matter. “The SunGard deal is signed, but the financing is not done by any means. Fingers crossed,” said one.

This story sums up the market over the last couple months. I flagged a similar story a month and a half ago (a few days before GM lowered its guidance and really got the ball rolling). This theme of credit widening is my best guess about why the stock market just can't get out of its own way lately.

In the spring of 2003 there was no announcement that low rates and easy borrowing would lead to a 2 year ramp job for credit and equity markets. The same thing is going on now in the other direction. It will only take one good deal to create a bounce in this environment but the flattening yield curve and weak expectations for U.S. treasuries probably contributed a fair bit to getting us here. I don't see those factors changing any time soon.