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THURSDAY JULY 24
The Upside Of Dumpster Diving Warren Buffett and John Paulson aren’t the only ones garbage-picking the subprime crisis. Now arguably the world’s most formidable bank is tilting at the same windmill. And $10 billion dollars says it can make a killing on the senior loans backing leveraged buyouts, positioning itself to fill in the financing void created by the credit crunch. Oh, yeah, and did we happen to mention that this would be in the form of a massive fund? July 2008Goldman Sachs has raised a $10bn fund to invest in loans backing leveraged buy-outs, taking advantage of a gap in the financing markets created by the credit crisis. The fund will buy senior loans, so-called because they are paid off before other debts. It comes in addition to an existing $20bn Goldman fund that invests in “mezzanine” debts, which are paid after the senior debt. Between the two funds, Goldman can now commit to financing sizeable deals itself without having to go through the long and sometimes painful process of recruiting outside investors for the debt. During the buy-out boom that ended last year, loans for leveraged deals were often pooled and used to back complex securities, called collateralised loan obligations, that were sold to investors. The CLO business has collapsed during the credit turmoil of the past year. Recent private equity deals have offered lenders better terms than were the norm in the boom years – when powerful private equity firms benefited from such Wall Street innovations as “covenant-lite” and “payment-in-kind” loans, the latter enabling borrowers to pay interest with paper instead of cash. Goldman’s latest fund is an example of the accelerating convergence between private equity and debt investing...
2 COMMENTS
Posted by Verran Jones - Jul 24 2008 @ 1:02 PM Re: The Upside Of Dumpster Diving How can the average investor get into Goldsach fund and I thought the CMO market was dead? Please respond. Verran Posted by Kenneth J Mathews - Jul 24 2008 @ 8:56 AM Re: The Upside Of Dumpster Diving We all knew that all the banks ran to the same side of the boat and that the "smarter money" would take advantage. The debt crisis was over blown (as is the oil crisis) and is seeking equilibrium. K
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