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Sunday, May 20, 2012


Dart stands to make a hefty profit, having received 100 cents on the dollar


Levels - a record debt of Spanish banks

At levels - jumped a record debt of Spanish banks to the European Central Bank (ECB) in April and amounted to 263.5 billion from 227.6 billion euro in March.

This level, which reflects the ability or failure to raise liquidity from the markets by the Spanish banks - in addition to the ECB - is historically the highest since 1999 when the Bank of Spain publishes this data.

Meanwhile, historically high insurance costs climbed Spanish bonds against default payments.
According to data from the Markit, the five-year CDS on Spanish debt rose to 540 basis points. This means that the cost to insure Spanish bonds of $ 10 million is $ 540,000.
Upward move of CDS also Italian and Irish counterparts

GOOGLE TRANSLATION FROM   http://tvxs.gr/news/kosmos/se-epipeda-rekor-xreos-ton-ispanikon-trapezon

Europe: US distressed debt funds scent an opportunity

Many European companies are facing arguably their most testing time since the second world war, with a pernicious combination of anaemic economic growth, government austerity and systemic banking stresses combining into a treacherous corporate climate.

The continent’s largest companies seem resilient to the turmoil. Lenders remain willing, even eager, to bankroll cherished blue-chip clients. Bond investors seeking to escape the risks lurking in many sovereign debt markets have piled into high-grade corporate bonds. But for many smaller or overly indebted companies, the outlook is gloomier.
After years of mostly dealing with impaired loans by extending maturities and hoping an economic recovery would restore many companies to health, restructuring and turnround professionals say banks are starting to tackle their dud debts.

Andrew Wilkinson, head of European restructuring at Goldman Sachs, says: “A year ago, banks were not interested in engaging in a debt restructuring with companies, preferring to ‘amend and extend’, but they’re becoming much more open to it now. Repeated extensions of maturities only get a company so far, and rarely fix the underlying problem.”

Mounting predictions of increasing corporate distress in Europe have attracted a host of predominantly US-based distressed debt funds. Their increasing involvement is likely to shift significantly the dynamics of restructurings in continental Europe, experts say.

“We’re moving into a new phase now,” says Richard Tett, a partner at Freshfields, the law firm. “Historically, restructurings in Europe have been driven by the commercial lenders, but over the past year we have seen an increasing number of US funds involved.”

With distressed debt funds starting to snap up the loans of some companies, many restructurings could be far less convivial in the future.

While banks may still prefer simply to extend maturities, funds do not want to be long-term lenders, and have typically bought the debts at a discount.

That allows them to advocate debt writedowns to improve the health of a company, or even to take companies over in a debt-for-equity swap. Although in the long run this may be better for many companies, the sometimes aggressive stances taken by funds can cause consternation among traditional bank lenders and company owners who may be wiped out in the process.

“It will be a wake-up call,” predicts David Kurtz, global head of restructuring at Lazard, the bank. “Restructurings in Europe will become less consensual, the way they are in the US.”

Yet the culture shock works both ways. US distressed debt funds enjoy a largely uniform restructuring environment across their home market.

That is not the case in Europe, which has a jumble of legal regimes. Martin Gudgeon, head of European restructuring at the Blackstone Group, notes: “The different jurisdictions in Europe make outcomes unpredictable, so we have more ‘out-of-court’ restructurings.”

This makes an aggressive approach much less viable in Europe, argues Gina Germano, a partner at Goldbridge Capital Partners, a newly set up fund.

“It’s a lot harder to be a nuisance and get paid out in Europe. It pays to be consensual and constructive,” she says.

Ms Germano adds that US funds will also “be surprised at how much inertia there is here. The UK is a relatively efficient jurisdiction, where a restructuring can take six months, but in continental Europe it often takes more than a year.”

Moreover, experts disagree over the scale and speed at which European banks will deleverage through selling loans to third parties such as distressed debt investors.

The IMF recently forecast that European banks looked set to trim balance sheets by €2tn over the next 18 months.

Most of this will come from constricting lending – but some is expected to come from asset sales. And PwC estimates that there are some €2.5tn of “non-core” loans that could be for sale at the right price.

Richard Thompson, a partner at PwC, says that loans with a face value of €20bn were sold in the first four months of the year, and estimates that total sales this year could hit €50bn.

Sales are likely to continue apace, Mr Thompson says, despite the European Central Bank’s €1tn emergency bank loans under its longer-term refinancing operation (LTRO).

Yet many experts caution that European banks move slowly.

Provisioning for stressed or impaired loans costs capital, at a time when profits are already under pressure.

Bar any cataclysmic economic and financial shocks, deleveraging is therefore likely to be more measured than some funds are predicting.

“The European banking sector debt is an enormous iceberg that is melting very slowly,” says Mr Gudgeon. “If they are to deleverage more quickly they would need more capital to take the provisions that would ensue.”

Nonetheless, even distressed debt funds based in Europe, or with longstanding experience investing in the continent, say that regional lenders will eventually have to shrink their balance sheets significantly – providing many opportunities for those ready to snap up the assets that drip out.

“Banks have kicked the can down the road. They live in an accounting world, but eventually reality has to hit,” says Frits Prakke of Alchemy Partners, a London-based fund.

“We will have a post-financial crisis landscape where many countries will be lucky to have anaemic growth, and some will suffer double-dip recessions. Default rates will be meaningful.”

SOURCE FT  - 18/5/12

Corporate debt a ‘perfect storm’ in the making, S&P warns

The physics of ocean waves are still difficult for existing science to fully explain. Mark Nolan/Getty Images - The physics of ocean waves are still difficult for existing science to fully explain. | Mark Nolan/Getty Images
If you enjoyed the thrills, spills and chills of the last credit crisis, I have great news. The makings of the next one are looming – large – right in front of us.
In a report last week, Standard & Poor’s said the world faces a mountain of roughly $46-trillion (U.S.) in corporate debt needs between now and the end of 2016. In addition to a $30-trillion “wall” of corporate debt that will come due and require refinancing, S&P estimated that corporations worldwide will need between $13-trillion and $16-trillion of new debt to meet their capital spending and working-capital needs – essentially, to finance growth.

Actually, those numbers are just for the five major borrowing markets in the world (the United States, the euro zone, Britain, China and Japan). A true global estimate would be even bigger. (But what’s a few trillion bucks among friends, eh?)
“This demand for funds will potentially compound the credit rationing that may occur as banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds. These factors, amid the current euro zone crisis, a soft U.S. economic recovery following the Great Recession, and the prospect of slowing Chinese growth, raise the downside risk of a perfect storm for credit markets, in our view,” S&P wrote.
Such a “perfect storm” is, essentially, another credit crunch. As you recall from the last one, those pesky things have a knack for choking off growth, fuelling liquidation of financial assets and generally making everyone very nervous – all bad news for the markets and the economy.
And S&P warned that the forces used to counter the last credit crunch – namely, an opening of the fiscal and monetary floodgates – may not be there next time around.
“Governments and banking regulators are now not as well placed to counter another perfect storm scenario, given that they have already expended so much of their fiscal and monetary arsenal to mitigate the problems arising in recent years,” it said.
Now, S&P isn’t saying this is a done deal; it believes the financial sector has recovered sufficiently to at least be able to clear the $30-trillion refinancing wall. It helps that corporate borrowers generally look more credit-worthy now than before the financial crisis, as the majority of them have improved their balance sheets by building up higher cash balances.
“However, the $13-trillion to $16-trillion required to fund future growth could be more at risk,” it said.
More than three-quarters of all global corporate debt is in the form of bank loans. Banks in most of these major lending regions (China being the well-heeled notable exception) face both new regulatory restraints and still-delicate balance sheets, which may prompt them to keep a tighter reign on their corporate lending than in past cycles. If the current euro zone sovereign crisis were to escalate or the economic slowdowns of China and Europe to broaden, already-tight lending policies could all but dry up.
“Given our expectation that certain borrowers may find the availability of bank financing more limited than in the past – and when available, at a higher cost with likely more onerous terms and conditions – alternative providers of debt financing may be set for a new challenge,” S&P said.
That means the bond markets – which may have a lot of trouble absorbing that much new supply. For example, if European companies were forced to turn to the bond market to raise, say, 50 per cent of their new funding needs (compared with 15 per cent historically), that would mean more than $200-billion per year of new issues; only twice in the past decade have European corporate bond issues even topped $100-billion in a year.
While this suggests potential for tremendous growth in corporate bond markets, it also implies a lot of competition for a slice of the bond-financing pie. Companies are going to have to pay higher interest rates to secure their funding, and some won’t be able to raise the money they need on terms they can afford. Higher rates, higher borrowing costs and insufficient available capital are all, at very least, substantial headwinds for healthy, sustainable economic and equity-market growth.
And it would all be exacerbated by heightened risk and economic deterioration, as Europe is already demonstrating. European Central Bank data show that banks’ corporate lending standards have tightened considerably since last fall.
“At best, we are currently at a fragile peace,” S&P concluded. “At worst, we have created the makings of a perfect storm for the future.”


SOURCE   http://www.theglobeandmail.com



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