Fears on the debt market

Escrito el 27 Julio 2007 por Juan Toro en Financial Markets

The credit squeeze is rattling the markets. The leveraged buy out fever is facing the absence of high yield/ high risk investors and the end result is that the underwriters (banks) of those deals are loading their balance sheet with unwanted corporate debt. A group of banks failed this week in their attempt to obtain sufficient finance for two of the major private equity deals, those of Chrysler and Alliance Boots. This failure implies a burden in the creditworthiness of banks that see their balance sheet full of unsold corporate debt. The easiest way to evaluate the creditworthiness of the banks is the behavior of the credit default swaps written on the debts of these institutions. These CDS provide an insurance against the default or non-payment of the bank


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