Debt Deluge at Anadarko

"It's hard for the market to strengthen, as there is this global reduction in liquidity [caused by raising interest rates]," says Gregory Peters, head of corporate credit strategy at Morgan Stanley. "Investors are reassessing the right risk premium. As global central banks to remove liquidity, investors wrestle with the impact."

Friday afternoon, Fitch put the company on negative watch, saying that the long-term ratings would likely be downgraded but that the company's debt would remain investment grade. Meanwhile, Moody's also placed the company under review for possible downgrade.

For now, Anadarko has promised it will quickly pay down the debt in 18 to 24 months by issuing equity or selling assets. According to the Fitch report, the company plans on paying down $15 billion of initial credit facility by issuing in equity and selling assets. The rest will be replaced with new debt. At those levels, the company should have no trouble covering interest with the $400 million of free cash the merged company would have produced in the first quarter. Certainly, investors hope Anadarko sticks to its promise for asset sales, given that the $24 billion credit facility is bigger than its stock market capitalization, and that the interest rate calculation gets more complicated as the rating changes.

But even that prong of its financing strategy could face trouble if equity markets continue to struggle. Just this week, private equity company Apollo pulled its initial public market offering of specialty chemicals company Hexion(HXN Quote), citing adverse market conditions. Other deals, such as Verigy(VRGY Quote), had trouble pricing and slumped in trading after the IPO.

So potential bond buyers won't find much security in Anadarko's promises to issue equity.

"Until the financing package has been finalized, bondholders are understandably skeptical about companies' promises to fund their acquisitions with equity," Marrinan says. "Thus, in assessing the risk of an M&A event, bondholders usually assume less equity will be used rather than more."

The banks lending to Anadarko might find themselves hamstrung as well. If bond market conditions worsen, and Anadarko drags its feet on issuing debt, the three lenders have tied up $24 billion in one company. Again, a heavy does of Fed hawkishness after next week's meeting in Washington is probably the most serious hazard here.

Still, for now, the banks are willing to take the risk.

"Attractive-yielding assets are in relatively short supply," says Marrinan. "Banks are in the market themselves, looking for higher-yielding assets to put their excess capital to work."