CNBC's Faber: Despite Credit Worries, Deals Will Still Get Done

In the current market environment it is true that there will be no new issuances of high-yield bonds. And it's true that any number of commercial and investment banks will be holding on to the financing commitments they have made to the go-private transactions currently pending.

What is not true is that any of those deals are in danger of not closing due to financing.

And yet, judging from the way the stocks of pending LBO's are trading, one would believe they were all in jeopardy.

Consider First Data--a huge LBO to be sure. The bridge loan for this Kohlberg Kravis Roberts deal has yet to even be funded because the deal has yet to close. When it is funded, it may be in place for longer than the banks providing it would like. But there is virtually no chance those banks walk away from this deal or that KKR walks away.

To do so would force the banks to pay the break up fee and open themselves up to serious litigation, not to mentions loss of reputation.

The same scenario is playing out in deals as diverse as TXU, Harman Internationaland Alliance Data. Each of those has traded down sharply on the perception that the deals are at risk given the current market environment.

If the economic environment were as bad as the current credit markets, maybe there would be cause for concern. But these companies are doing just fine. It's the lenders who may not be.

And that's why we are likely to see a significant slowdown in new go-private transactions. It's not even because banks won't consider lending to any new go-privates. It's because they will now do so with sharply higher pricing, sharply reduced leverage ratios and much stronger covenants.


One banker offered an illustration: his institution was helping an unnamed company explore strategic alternatives including a sale.

When it first received the mandate it was offering private equity buyers stapled financing at 7.5 turns of leverage. With the upheaval in the credit markets, it brought that down to 5.5 turns of leverage. That decrease resulted in the private equity firms bidding less and the company decided it was better off staying public for now.

That scenario will keep playing out as buyers and sellers adjust to the new pricing realities. It means fewer big go-privates are likely. It means strategic buyers can make moves without worry of being topped by private equity. It means the prices paid for public company divestitures may come down.

But it does not mean disaster.