It's hard to say whether the events described in the following post from DealBreaker, "Citigroup Looks To Lend Money To KKR To Buy Citigroup's Loans," reflect a) a reshuffling of deck chairs on the Titanic; b) the boys in the Wall Street 'hood trying to keep dancing until the music stops; c) snake-oil salesmanship at its finest; or, d) all of the above. Whatever the case, at least one legendary flim-flam man would have been proud.
Let’s see if we have this straight. Citigroup wants to sell off some of the leveraged loans it committed to before the credit crunch. Many of those loans were made to private equity owned companies for leverage buyouts, including companies that KKR bought. A fund managed by KKR is looking to buy the leveraged loans, which it believes are under-priced in the wake of the credit market turmoil. But everyone knows KKR doesn’t buy anything with cash: it borrows the money. So now, according to the Financial Times, Citigroup might lend money to KKR to buy Citigroup’s loans.
This is very possibly the best story ever. The only way it could get better is if KKR went on to buy the loans used to buy loans from Citigroup. And, of course, Citigroup lent it the money for that. And then, well, you get the point. In the end of our fantasy, Citigroup’s stock get’s hammered by investors skeptical of this snake-eating-its-tail lending scheme. And get bought out by KKR. With loans from....
Insiders report that credit market expert Charles Ponzi has been retained as an adviser to both Citigroup and KKR for the transaction.
Citigroup talks to KKR about leveraged debt [Financial Times]
Loan kiting?
Posted by: Deborah | October 05, 2007 at 12:02 AM
Moin From Germany,
"Enron-esque characteristics".....In the meantime "Party On".....
Banks use discounts to tempt ‘vulture funds’ / FT
Investment banks are offering finance to “vulture funds” on improved terms if the money is used to buy debt from them, according to bankers and managers of the funds.
Banks keen to shift a backlog of well over $200bn of leveraged buy-out debt are tying leverage for recovery, or vulture, funds run by hedge funds and private equity to the sale of the debt.
The financing amounts to a hidden discount, allowing the banks to minimise public discounts on LBO debt they are having to sell at below face value.
“The banks are offering different terms depending on whether you take their loans or other people’s loans,” said one hedge fund manager who has just raised a recovery fund.
“Most of the leverage being provided by banks is only being provided if you buy their loans,” said another.
http://www.ft.com/cms/s/0/cb924bee-72a3-11dc-b7ff-0000779fd2ac.html
Posted by: jmf | October 05, 2007 at 04:55 AM
"Mr. Ponzi Would Have Been Proud"
He is...
Posted by: Edward Charles Ponzi Jr | October 06, 2007 at 09:11 PM