Buyouts in a bind
The debt crunch has already led to the delay of some 20 transactions. Here are the deals and dealmakers to watch.
LONDON (CNNMoney.com) -- Turmoil in the debt markets has put the pressure on some of the year's biggest leveraged buyout deals, and the jitters aren't likely to subside anytime soon.
Investors have been backing away from the risky bonds and loans that support most of these deals as the fallout from the subprime mortgage meltdown has spread.
About 20 buyout-related debt deals have been delayed. One of the most high-profile deals hit has been Chrysler, which last week postponed the sale of $12 billion in loans related to its takeover by Cerberus Capital Management.
One indication of the severity: A high-yield corporate bond manager for one firm was called back to New York at the start of a two-week vacation in New England to deal with the situation.
Analysts say the paralysis is unlikely to lift this summer - investors have been shaken, and August tends to be a slow month for issuance.
"This is much worse than anything we've seen in a while," said Sabur Moini, head of credit strategy at investment management firm Payden & Rygel in Los Angeles.
But the financing stand-still should be temporary, he said, pointing to the large backlog of debt deals.
"There is a large forward calendar of $200 billion plus and at some point these deals will have to come to market," Moini said.
Those deals are likely to be more conservatively structured and priced, which could bring big investors back into the market. In addition, high-yield money managers are sitting on a growing pile of cash that they're going to want to put to work.
The extent to which the debt market recovers depends largely on how the economy fares in the next few months, analysts say.
So far, there have been encouraging signs. The government said last week that the economy grew at an annual rate of 3.4 percent in the second quarter.
If the economy keeps chugging along, a high-profile deal may be able to clear the hurdles in the market and bring back investor confidence.
But Martin Fridson, who heads New York research firm FridsonVision, doesn't think banks are likely to try the big deals until fall at the earliest.
"It's out of the question to see a serious attempt before Labor Day. And even after that, there's no assurance that it'll be feasible to resurrect some deals," said Fridson, who specializes in the high-yield market.
The debt crunch could have implications for some of the year's biggest leveraged buyouts as well as the players involved in those deals.
A look at some of the deals and dealmakers to watch:
First Data and Alltel
Some of the year's biggest leveraged buyouts still haven't closed, including the $27 billion buyout of payment processing firm First Data (Charts, Fortune 500) and $27 billion takeover of wireless service provider Alltel (Charts, Fortune 500).
Both those firms are planning massive junk bond offerings to support their takeovers. First Data's $8 billion junk bond sale would be the biggest ever, while Alltel is expected to issue about $7.7 billion in junk bonds.
Kohlberg Kravis Roberts & Co.
The private equity titan has been one of the most active buyers this year and is involved in some of the largest pending deals. It's the buyer of First Data and is part of the group taking over Texas utility TXU (Charts, Fortune 500) for $44 billion.
Banks have already committed capital for those deals, but private equity firms could be asked to pony up more equity, analysts say. That could lower the heady rates of return buyout firms have enjoyed on their investments the past few years. KKR, which is planning a $1.25 billion initial public offering, could see its valuation hit.
Blackstone made its splashy public debut before the debt crunch hit, but its shares could feel pressure this summer as the outlook for buyouts grows more grim.
Banks have scored hefty fees from private equity deals, but they could also be left holding loads of unwanted debt on their balance sheets while the market for risky loans and bonds cools. Nearly all the big banks and Wall Street firms have committed financing for these deals.
Citigroup (Charts, Fortune 500) has been one of the most active players. The financial services giant was a lead arranger in several of the debt deals that have run into trouble recently, including debt offerings from U.S. Foodservice, Allison Transmission and Chrysler.