Thomson Learning Teaches The Market A Lesson - Is Blackstone Listening?

The Thomson Corporation (TOC) experienced serious push back from debt markets as they attempted to sell Thomson Learning to private equity. The leverage side of the deal, i.e. the lenders and potential bond holders, demanded stronger terms and pretty well got them. Apparently, the lenders realized that it's a new day and they are more in the driver's seat than the deal makers, who desperately need to rent the very large sums of money.

At the same time, Blackstone's (BX) IPO goes ballistic because some investors believe the party will last forever. The financial press makes much of many other similar hedge funds watching very closely. KKR Financial Holdings (KKR) is even taking notes, according to some sources - although there was an end of day weakness just before the close.

Market thinking is somewhat delusional and contradictory. If the leverage side of the market becomes increasingly skittish, making liquidity more expensive and questionable than the entire deal, flow will shrink quickly and the new Blackstone investor will be looking a little sick.

Strange that a deal for a Learning Systems company will start teaching the market a few fundamentals.