Big lenders offer discounts to clear bond, loan backlog

CITIGROUP Inc, Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co are offering discounts of as much as 10 cents on the dollar to clear a US$231 billion backlog of high-yield bonds and loans.

"The market can absorb all of these deals," said John Eydenberg, head of leveraged finance for the Americas at Deutsche Bank AG in New York, Bloomberg News reported. "It is a question of time and price."

While lenders reduced the overhang by 32 percent since July, they are struggling to unload debt from this year's record US$438 billion of leveraged buyouts after losses from securities linked to subprime mortgages reduced demand for higher yielding assets, according to data compiled by Bloomberg. They sold some bonds at a discount of 10 percent to face value and loans at five percent below par, according to London's Barclays Plc.

Bankers led by Goldman and Citigroup hold US$17.5 billion of debt they could not sell from the purchase of the Little Rock, Arkansas wireless carrier Alltel Corp. Lenders including Bank of America Corp, Deutsche Bank and JPMorgan are committed to lend US$22.3 billion next year for the purchase of the Las Vegas casino company Harrah's Entertainment Inc, according to filings with the US Securities and Exchange Commission.

Banks including Citigroup, Deutsche Bank and Morgan Stanley will provide US$22.1 billion for the acquisition of radio broadcaster Clear Channel Communications Inc in San Antonio. Banks including Citigroup and Toronto-Dominion Bank are on the hook for US$34.3 billion for the Montreal telephone company BCE Inc, according to SEC filings.

Toronto-Dominion monitors the number of its deals so it is not holding too many if there's a market disruption, said spokesman Nicholas Petter.

"You only take risks when they're transparent and you can measure them," Petter said. "We're comfortable with where we are."

LBOs declined to US$101.9 billion in the second half from US$336.4 billion in the first six months as the subprime market collapsed.

The extra yield investors demand to own high yield bonds, those rated below BBB- by Standard & Poor's and Baa3 by Moody's Investors Service, rather than Treasuries widened to 5.64 percentage points on Thursday from a record low of 2.41 in June, Merrill Lynch data shows.

Interest rates on loans rated B rose to 4.28 percentage points more than the three-month London interbank offered rate, a lending benchmark, from a low of 2.13 in February, according to S&P.