Last evening's decision by a Texas judge that would obstensibly force the banking syndicate to proceed with the Clear Channel LBO (CCU-OLD) cannot go unnoticed by every lender (and bank shareholder) in North America. According to yesterday's Wall Street Journal, a key sticking point for the private equity firms was that they were being forced by the draft credit agreement to find new financing in four short years. Doesn’t sound all that unreasonable, but T.H. Lee and Bain Capital would have none of it.
Assuming the judge’s decision is upheld on any eventual appeal, BCE (BCE) shareholders can rejoice a snick (see prior post “Headline writers ‘misspeak’” March 26-08). Although we operate in a different legal climate than the U.S., and every contract is different, the mood of the Bench will not be lost on the banks “backing” the Teachers’ BCE transaction (see prior post “Are sad days ahead for BCE shareholders?" February 14-08).
In the pavlovian market that we live in, BCE shares will likely tack on some early gains today, just as the stock was down C$1.25 on the heels of trouble at Clear Channel deal central.
As for the suffering money center bank shareholders, it would appear that more writedowns are around the corner if these deals proceed. It seems that “the market” is valuing these jumbo loans between C$0.80 and C$0.85 cents at closing, which means a few billion needs to be written off every time a C$19 billion LBO loan package is put on the books; whether or not the loan is performing as contracted. The only good news, I suppose, is the notion that these loans can be marked up again a year or two from now should the credit markets relax in the interim.
Disclosure: The author owns BCE shares.