Interesting developments in the financial markets recently, several large debt packages associated with large LBO deals have been getting more expensive for the borrowers.
Mega deal Alliance Boots in the UK has seen it’s interest and upfront commitments rise as lenders rejected the original offering.
Equally impressive mega deal Chrysler has been having a rough week with few takers on the $12b package.
All of this points to a widening blast radius from the blow up in the subprime mortgage market. Major investment banks are currently stuck with USD$11 billion in debt from deals they underwrote that they can’t offload. While it was trendy to talk as recently as a few months ago about a major LBO in the software space, perhaps even SAP, any consideration of that today is pure fantasy.
Another implication is that Oracle’s acquisition strategy is surely to be slowed in light of the more expensive debt they would have to take on in order to pull off another multi-billion dollar acquisition. While Oracle enjoys an outstanding debt rating and it’s borrowing is but a fraction of it’s market capitalization, the fact remains that debt buyers see more volatility and risk in the market and are demanding richer terms as a consequence.