Buy-out firms like KKR and Blackstone (BX) are buying back the debt that their banks took on for LBOs over the last nine months. Big commercial banks like Citigroup and JP Morgna (JPM) put out these large loans so that the private equity firms could make out-sized deals. Then, when the credit markets got bad, the banks could not sell the loans to other institutions.
But, KKR will buy them back, and borrow money from the banks to do it. According to Bloomberg: "After sticking banks with more than $300 billion of leveraged buyout debt, New York-based Kohlberg Kravis Roberts & Co., Schwarzman’s Blackstone Group LP and Black’s Apollo Management LP are raising money for collateralized loan obligations that will buy the assets for as little as 95 cents on the dollar."
The news service adds" Kravis, Schwarzman and Black are taking advantage of the banks’ predicament, offering to buy the loans at a discount. The lenders, which reported more than $50 billion of losses and writedowns, are even providing financing to buy the loans."
There ought to be a law against this. Banks get to unload debt that makes their balance sheet look bad and gives out loans to make it happen.
Sounds like incest.
Douglas A. McIntyre
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