Leveraged Debt Boom

So I guess my predictions on the Yankees sweeping the hapless Indians is not going to be true. Little do you people know though that I truly do not care that the Yanks don't true. In fact, it may be even better that the Indians were ALLOWED TO WIN the 1st game of the series. Let's take a look at their record when they win/lose the first game of the ALDS.

2006 Yanks won first game to Detroit, lost series
2005 Yanks won first game against Angels, lost series
2004 Yanks lose first game to Twins, win series
2003 Yanks lose first game to Twins, win series
2002 Yanks won first game to Angels, lost series
2001 Yanks lose first game to As, win series
2000 Yanks lose first game to As, win series
1999 Yanks sweep Texas
1998 Yanks sweep Texas
1997 Yanks won first game against Indians, lost series
1996 Yanks lose first game to Texas, win series
1995 Yanks won first game against Mariners, lost series

Since the beginning of the ALDS series, the Yankees are 2-5 when they win the first game of the series and a PERFECT 5-0 when they lose the first game. Ladies and gentlemen, this is all set up for the Yanks to win the next 3 games (at Yankee Stadium no less and Steinbrenner gets to sell more tixs and concessions) and wipe the pathetic Indians off their playoff run.

Now that I have gotten that off my chest, back to this blog being more Wall Street oriented.

Here is an interesting article from the FT today on Citi selling part of their bridge financing loans to (drumroll) ........ KKR ...... of all entities.

http://www.ft.com/cms/s/0/a4075160-7081-11dc-a6d1-0000779fd2ac.html
http://www.ft.com/cms/s/0/68aa7404-72f6-11dc-b7ff-0000779fd2ac.html
http://www.ft.com/cms/s/0/9c737cfc-71ef-11dc-8960-0000779fd2ac.html

For those not familiar with bridge loans, they are promises to a private equity firm like KKR that the bank will lend them the necessary funds to buy out their target company. In the midst of the subprime loan scandal and thus a credit crunch, the banks were having a difficult time offloading these loans to the investors. PE firms like KKR of course would still benefit because they are getting the financing no matter what the credit environment is whereas the banks obligated to complete the loan. It then became a situation of the loans sitting on the banks' books and thus increasing their risk and aggravating shareholders everywhere.

Now Citi is turning around and attempting to sell off these loans (at discount of course) to .... the same private equity firm that are using the loans like KKR. Does this strike anyone being as ironic?

Think of it this way. Your parents promises to lend you the down payment on your house and it's a promise that you know they are good for. Before you can finalize the closing process, your parents were fired from their jobs and thus are in need of their savings. Now their original commitment to you to fund the down payment is in jeopardy but their word is their word. So what do they do? Instead of trying to decrease the loan commitment, they turn around and borrow the money from you to give back to you for the down payment. Is this odd or what? Basically the only person who benefits is you because you essentially have a free loan in that whatever interest you have to pay to your parents for the loan are negated by the interest your parents owe to you.

Now back to the scenario of Citi selling the loans to KKR which is even better because KKR obtains the loans on a discount, thus boasting the yield (in essence the true interest income) which would offset the interest expense owe to Citi for making the original loan commitment. KKR truly comes out on top as they would save (or even make) money on the deal from 1) interest income vs. interest expense and 2) fees and gains from opening the vulture leveraged debt fund.

Usually it's the investment banks like Citi who makes off good but this time it is heavily in the favor of their clients. Wall Street does not get any better than this. Stay tune for more on this developing drama of private equity fleecing the banks.

Go Yankees!


-Myth