Risk-Off Spreading—-Leveraged Loan Market Freezing Up

Sure enough, according to Bloomberg calculations, the ongoing rout in the corporate loans has now forced many of Wall Street’s largest banks to be stuck with at least $1.6 billion of unwanted leveraged buyout debt which they are unable to sell to investors in what is increasingly shaping up as a bidless market.

In addition to the previously discussed pulled loan deals by banks such as Barclays, Wells Fargo, and Goldman, virtually all banks that sell loans for LBOs are now struggling to sell loans they’ve agreed to make for private equity deals. As a result, at least four loan sales for buyouts and acquisitions have failed to clear the market so far this month, forcing the banks to keep the debt on their books, where it may incur mark-to-market risk should prices continue to fall, further depressing bank earnings.