Banks like
Citigroup Inc. (NYSE:C) and
J.P. Morgan
(NYSE:JPM) are reportedly offering financing packages for private
equity firms and hedge funds in order to purchase debt held by the
banks themselves. The hope is that this will help generate some
activity in what has become a relatively illiquid credit market.
Many
investment banks have reportedly offered up to 4:1 leverage for private
equity firms to purchase discounted debt issues. Others have thrown
around rates of LIBOR + 60 and LIBER + 85 basis points. These types of
leverage could boost returns to the double digits for hedge funds and
private equity interested in entering the market.
More than $250
billion in bank debt is due this year alone and many are expecting the
majority of it to be sold at a discount to third parties. Ideally, this
will help boost the liquidity in the market and restore access to
capital that has kept the M&A industry so active the last year.
Related CompaniesLegg Mason (LM)UBS AG (UBS)Bank of Montreal (BMO)