Economy and General Discussion

Cracks in Credit

http://www.bloomberg.com/apps/news?pid=20601039&sid=apz1wFyR5x3Q&refer=home

Cracks are starting to appear in the credit market, threatening to disrupt the flow of easy money that has fueled a record pace of leveraged buyouts. No wonder Blackstone Group LP is trading below last week's initial public offering price.

ServiceMaster Co., which owns pest-control and gardening companies, is the quarry in a $5.2 billion buyout by Clayton Dubilier & Rice Inc. The company failed to find buyers for $1.15 billion of a bond flavor called pay-in-kind toggle notes this week, intended to fund the takeover.

Instead, Downers Grove, Illinois-based ServiceMaster will split the sale between ordinary debt and toggle notes, which give it the right to hand investors more debt instead of interest payments.

US Foodservice, a unit of Royal Ahold NV, the Dutch supermarket chain being bought by Clayton Dubilier and Kohlberg Kravis Roberts & Co., took three stabs at sweetening the terms of its planned $1.55 billion fund raising before junking the deal. Toggle notes again proved unpalatable to investors.

Also this week, KKR boosted the interest payable on a $2.43 billion loan funding its purchase of discount retailer Dollar General Corp., investors who may buy the debt told Bloomberg reporter Harris Rubinroit. Instead of as little as 2.5 percentage points more than money-market rates, the loan will pay a premium of 3 percentage points, boosting the potential quarterly interest payment to as high as 8.36 percent.

And Thomson Learning, a unit of Thomson Corp., scrapped the riskiest slice of a planned $2.14 billion bond sale last week. It boosted the interest it was willing to pay on its loans and cut the amount of debt offered to $1.6 billion to get the sale away.

via Russ Winter http://wallstreetexaminer.com/blogs/winter/?p=864#comments

Catalyst Paper Corp., citing “adverse” market conditions, scrapped a $200 million offering of junk bonds the Canadian company planned to use for funding its business and other investments or acquisitions.

- Underwriters delayed the launch of a buyout-financing deal for Myers Industries Inc. in the hope that the market would settle down in coming days. Late in the day, Magnum Coal Co. became the latest company to postpone a junk-bond offering, this one for $350 million.

- In Europe, Arcelor Finance, the borrowing vehicle for Arcelor SA, which is being acquired by Mittal Steel Co., put off its plans to issue more than $1.34 billion in bonds, citing the turbulent debt market. In Malaysia, shipping company MISC Bhd. put plans for a $750 million bond offering on the back burner.

- MISC, the world’s biggest owner of liquefied gas tankers, day shelved its $750m bond offering.

- June 28 (Bloomberg) — Carlyle Group, the buyout firm run by David Rubenstein, postponed a planned $415 million initial public offering of a fund that invests in bonds backed by mortgages after a slump in the U.S. subprime market.

KrisB

June 28 (Bloomberg) – Kia Motors Corp., South Korea’s second-largest automaker, canceled plans for a $500 million bond sale this week, joining at least seven companies abandoning borrowing as investors cut demand for riskier assets.”