BL: BCE LBO Failure Would Remove Largest Slice of Backlog (Update3)
By Pierre Paulden
May 22 (Bloomberg) -- The potential cancellation of BCE Inc.'s C$52 billion ($52.9 billion) leveraged buyout may help loan prices recover by removing the largest portion of high- yield, high-risk debt banks need to sell from last year's deals.
``If BCE is canceled it reduces the amount of debt on bank balance sheets substantially,'' Chris Taggert, an analyst at fixed income research firm CreditSights Inc. in New York said in a telephone interview. ``It's the largest piece of the pipeline out there and would be a boost to the market.''
Loan prices have climbed as banks this year found a way to reduce their pipeline of loans promised last year to private- equity firms to $81.6 billion from $156 billion, according to Standard & Poor's. Loans backing the acquisition of Montreal- based BCE, Canada's biggest telephone company, comprise $16.8 billion, or 20.6 percent of the backlog.
Prices are up to an average 91.86 cents on the dollar, from a record low of 86.3 cents in February, according to S&P. Private-equity firms including Blackstone Group LP and Apollo Management LP have bought loans from banks, and the risk of financial institutions failing has subsided.
``There's been capital coming into the space and systemic risk has declined,'' Taggert said.
BCE plunged the most in at least 25 years in Toronto Stock Exchange trading as investors bet the buyout may collapse after bondholders unexpectedly won a court ruling yesterday letting them challenge the deal. BCE dropped C$4.50, or 12 percent, to C$32.62.
Bond Trading
BCE agreed to a C$42.75-a-share offer from a group led by the Ontario Teachers' Pension Plan in June. The bondholders, among them CIBC Global Asset Management Inc., say the acquisition would load BCE with debt, increasing the risk of a default.
BCE's C$150 million of 10 percent bonds due in 2054 have tumbled about 38 cents to 129.3 cents on the dollar since March 2007, when reports of a buyout emerged. The yield has risen to 7.7 percent from 5.8 percent, Bloomberg data show.
Toronto-Dominion Bank, Citigroup Inc., Deutsche Bank AG and Royal Bank of Scotland promised to provide $34.3 billion of financing including high-yield bonds, according to SEC filings.
``This is good news for'' Toronto-Dominion, Desjardins Securities analyst Michael Goldberg wrote in a note to investors today. ``A new deal or no deal would mean that TD would not experience losses on the syndication of its financing.''
The bank has probably marked down its BCE financing commitment by about C$150 million, mostly in the past two quarters, Goldberg said. The bank has said it agreed to finance about 10 percent of the equity portion of the BCE purchase, or about C$3.3 billion.
Banks still must find a way to sell debt backing the Clear Channel Communications Inc. and Penn National Gaming Inc. takeovers. Fortress Investment Group LLC and Centerbridge Partners LP agreed in June to buy Wyomissing, Pennsylvania-based Penn National, the owner of 19 casinos and racetracks, for $6.1 billion.
To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net
Last Updated: May 22, 2008 16:51 EDT
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