This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Bridge Loans Leave Bankers Quaking

The sun is shining on the stock market, but the bankers financing big leveraged buyouts are fretting over changes in an obscure corner of the debt market.

Investment banks like Goldman Sachs (GS - Get Report), Merrill Lynch (MER), Morgan Stanley (MS - Get Report) and Lehman Brothers (LEH) have been handing over billions of dollars in so-called bridge loan commitments to buyout-happy private-equity shops .

Bridge loans are hardly lucrative for investment banks -- they are not usually even drawn down. Instead they serve to "bridge" the gap between the announcement of a buyout by the likes of Blackstone Group (BX - Get Report), Kohlberg Kravis Roberts and TPG Capital and the receipt of permanent financing.

But with the debt market having soured recently for leveraged buyouts, banks are starting to worry that private-equity shops might opt to actually draw upon these hefty loans -- possibly leaving the banks with billions of unwanted loans on their books, unless they can syndicate them out to buyers including hedge fund investors.

One senior investment banker, who declined to be identified, tells that the situation is a serious concern since the debt market has turned choppy.

"You never want to see your bridge loan get drawn, but I fear we will see some bridge loans get drawn," says the banker.

Many deals, including February's $45 billion KKR-TPG plan to acquire TXU (TXU), were funded with bridge commitments through a cadre of banks eager to bag business with private-equity firms.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,316.37 +125.00 0.73%
S&P 500 2,009.52 +7.36 0.37%
NASDAQ 4,646.0790 +8.0850 0.17%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs