2007

Open for Business

In the summer a credit crisis loomed. Stocks fell, mortgage companies and hedge funds collapsed, and as the effects began to turn up in Europe and Asia concern grew that this was something much more dangerous than we dared believe. And, we dare say, our bank debt deal table for September has been strikingly slow to develop. But two weeks into the autumn season, the fed has slashed rates by half a percent, the Dow is back up, and bank earnings reports have been less dire than many had been led to believe. US mortgage problems did have a direct impact on available liquidity as certain buyers of debt were seriously harmed. However the indirect effects were amplified as mortgage defaults sounded a wake-up call for investors for all of the risky debt they had been buying, bring other highly leveraged markets such as LBO deals to a virtual halt.

As it very fortunately turns out, the barrage of defaults has not spread outside real estate, where inane interest-only loans and rates that jumped dramatically after several years, often made to first-time borrowers with poor credit, all but doomed the market for a shake-up. Lenders appear to be growing more cautious, as we hope to learn more about from our special survey with results to be published in an upcoming Freshly Minted issue. In April many shipping bankers warned of a crisis, saying “we are living in a Disneyland of risk/reward” and “the emperor has no clothes on”. Perhaps the mortgage crunch has provided a gentler wake-up call than a broader crisis with broad corporate defaults. Or perhaps the worst is yet to come. We’re looking forward to hearing what our readers have to say. OceanFreight in $325 million.

This is only an excerpt of The Week in Review – 09/20/2007

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