If You Liked CDOs, You'll Love CLOs...

by Dollars and Sense

From the Financial Times:

Night of zombie company looms as debt burden remains large

By Anousha Sakoui
Financial Times
Published: July 2 2009 20:50 | Last updated: July 2 2009 20:50

Third time lucky is a phrase often quoted by bankers who believe it takes several debt restructurings to get a company's balance sheet right.

The phrase is even more relevant today amid growing concerns that debt restructurings are leaving companies saddled with too much debt, even at the end of the process.

Part of the blame has been laid at the feet of capital-constrained banks which have been reluctant to write down the debt because it could create losses that would further weaken their balance sheets.

Debt and bankruptcy specialists warn that trend risks creating a new breed of zombie companies--those which survive simply to repay their debts but cannot move forward because their debts remain so large.

An even greater problem is posed by collateralised loan obligations--complex funds that pooled loans and at the height of the credit bubble were buying up to 60 per cent of leveraged loans.

Read the rest of the article

Labels: bailout, banking system, bankruptcy, collateralized loan obligations, derivatives, financial crisis

 

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7/03/2009 05:36:00 PM