The current stagnation in the leveraged loans market is here to stay for at least a few months and could continue into next year, according to one of London's leading credit strategists.
Willem Sels, head of credit strategy at Dresdner Kleinwort, believes the market is "potentially weak until the start of next year".
He suggests the problem could be exacerbated by the market then anticipating higher defaults due to a period of extended low liquidity.
Mr Sels, who has been warning of the problems inherent in the credit market for some time, said the knock-on effect for the private equity market could be highly damaging.
Debt-led merger and acquisitions are likely to dry up, hitting equity markets, he argues.
Mr Sels believes the problems in the leveraged loan market began as banks realised the inherent similarities between it and the US mortgage market, which has had serious difficulties of late due to the sub-prime market and the way mortgages are structured in North America.
"What has happened is that the balance of power has shifted from the borrower to the lender, and banks can start to choose again.
"But the problem in the credit markets is that there are structured products which take leverage positions to the underlying asset, and so if the underlying asset dips, the losses are somewhat more."
Sources : http://www.telegraph.co.uk/
|
