Reply #16: COLUMN-It'll be a cold day before debt markets reopen:James Saft

[UpInArms]

http://www.reuters.com/article/bondsNews/idUSL3185031320070731

LONDON, July 31 (Reuters) - Hopes that debt markets will reopen for leveraged borrowers after a pleasant summer holiday will be dashed, leaving mergers and buyouts and the stocks which depend upon them very exposed.

The riskier parts of the debt markets, especially leveraged loans, have all but shut up shop. Hedge funds generally can't get credit from their bank lenders and structured finance isn't buying either.

And it's not just that investors could have a long wait before the debt-powered private equity pipeline starts flowing again, it's also possible that a liquidity crisis prompts defaults and wider economic fallout.

Many deals have been shelved or underwriters forced to actually hold paper they hoped to sell on. Cadbury Schweppes (CBRY.L: Quote, Profile, Research) delayed the sale of its U.S. drink business last week, while sale of loans to Alliance Boots and Chrysler totalling more than $22 billion were postponed.

While the catalyst has been a reassessment of the very loose terms credit markets were offering, caused in turn by losses in the subprime debacle, what we are seeing in debt markets is a classic liquidity crisis.

With both collateralised loan obligations, structured vehicles which bundle debt together, and hedge funds sidelined, and with a huge forward calendar of deals needing to be sold, it is hard to see how debt markets can revive quickly.

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