Department of split-second golden ages, Henry Kravis edition

Bloomberg, July 2 2007:

In April [2007], [buyout mogul Henry Kravis] stood in a ballroom of the Waldorf-Astoria hotel in New York, telling [people] that the private equity industry he had helped invent was hotter than ever.

“We’re in, right now, the golden age,” Kravis, 63, told a gathering of prominent… executives.

In May, Kravis was in Halifax, Nova Scotia, saying, again, that the takeover arena had never looked better.

“The private equity world is in its golden era right now,” Kravis told a conference of bankers and investors. “The stars are aligned.”

Wall Street Journal, February 6 2008:

A new problem is rippling through credit markets: Many of the corporate loans used to finance giant buyouts in the past few years are reeling in secondary market trading…

The loans of First Data Corp., which was taken private in September by Kohlberg Kravis Roberts & Co. for about $28 billion, were sold into the market this past fall at a 4% discount to their par value; they now trade in the market at a steep 11.5% discount to par value…

Loans of Freescale Semiconductor Inc., taken private by a consortium of private-equity firms in December 2006 for about $28 billion, are trading at a 15.5% discount to their original value; Tribune Co., which was taken private in April by investor Sam Zell for $8.2 billion, issued loans now trading a 26% discount…

The loans are known by investors as “leveraged loans,” used by companies often with low credit ratings to raise money, often for buyouts…

Double-digit declines in the market value of these loans are very unusual, and a big problem for many banks, which sit on a pipeline of $152 billion in loans that they have promised to make but have yet to sell to investors.

With the prices of existing loans tumbling, investors have little incentive to buy new loans unless they are sold at steep discounts, something banks are reluctant to do…

The crisis started last summer, when investors turned up their noses at billions of dollars in buyout debt, just after many buyout firms and their bankers made commitments to history-making megadeals. Many investors say January was the worst performance for this market since those summer months…

The saga of Harrah’s Entertainment Inc.’s loan sale is a sign of the distress in the market. Credit Suisse broke from a group of banks lined up to sell $7.25 billion in loans tied to Harrah’s buyout. It offloaded its commitment of about $1 billion through derivatives transactions in December, says a person briefed on the transaction. The move sent other banks scrambling to sell some of their own Harrah’s loan commitments in January…

Last week a Lehman Brothers-led group abandoned its three-week effort to sell CDW Corp.’s $2.2 billion loan to buyers. The deal failed to generate interest even though they were offering to sell the loans in the low 90s. In October, Madison Dearborn Partners LLC and Providence Equity Partners acquired CDW, one of the country’s largest technology-equipment resellers, for $7.3 billion.