Everything is Fun & Games

Till Someone Gets Hurt!

Just How Wildly Exuberant is the Junk-Credit Market?

This deal is “reminiscent of the kind of deal I would have seen in 2006 and 2007.” They’re still blowing off the Fed.

This is considered a door-opener Leveraged Buyout (LBO): If it flies and investors buy this $13.5 billion pile of deeply junk-rated debt today, even riskier and bigger LBOs may fly. 

It’s the fourth largest LBO since the Financial Crisis and the ninth largest of all times in the US and Europe: Thomson Reuters Corporation is separating its largest division, the financial information, analysis, and risk businesses, now called “Refinitiv,” to sell a 55% stake to a group of investors led by private equity firm Blackstone Group.

 This being a “leveraged” buyout, the Blackstone consortium is making the target company, Refinitiv, borrow in total $13.5 billion to fund most of its own buyout. This consist of $9.25 billion in “leveraged loans” and $4.25 billion in secured and unsecured bonds. Some pieces are denominated in dollars, others in euros. This debt sale is being completed today. 

The Blackstone Consortium will infuse $3.025 billion in cash equity. Thomson Reuters will retain a 45% stake and will receive a special dividend from Refinitiv of approximately $17 billion, according to Moody’s. And there are some other details involved.

 But none of these fundamentals matter to investors. These institutional investors – such as pension funds, insurance companies, loan funds, etc. – are eager to buy this debt to get some extra yield, no matter what the risks or consequences, because the party must go on.

 “As long as the music is playing, you've got to get up and dance,”

Charles Prince

Ex-Citi Bank CEO

2007

DYI:  Anyone who has a zeal for yield when the music stops and the party is over; the smash will be felt all over the world.  These imbalances are not just here in the States but in every 1^st and 2^nd world countries.  We will have a worldwide recession.  The question of course is when?  I don’t know nor does anyone else for that matter. 

I have to admit I thought we would have been in the downturn at least two years ago but here we are and the music is still playing and everyone is still present and dancing.  But when the music stops just like the game of musical chairs instead of just one chair taken out at a time multiple chairs will disappear and will repeat until a bottom is put in.  How long will this take??  Just as with the question of when how long no one knows!  Will it be a 1929 to 1932 smash or the long drawn out Japanese 1990 to 2009 experience?  Don’t know.  What we do know is value and as that improves DYI’s model portfolio will increase step by step with those improvements.  The Great Wait Continues!

  DYI