Friday, June 29, 2007

Investors in retreat to escape credit risk

Investors in retreat to escape credit risk
By FT Reporters
Copyright The Financial Times Limited 2007
Published: June 28 2007 11:41 | Last updated: June 29 2007 01:44

The retreat from risk in global credit markets gathered pace on Thursday as investors demanded stricter terms for high-yield bond issues and a London hedge fund said it would wind down after suffering big losses on US subprime mortgages.

Caliber Global Investment, a London-listed fund, said it would sell its assets and return capital to investors after a review found “insufficient demand currently” for exposure to the subprime mortgage market. The review was triggered by an $8.8m (£4.4m) net loss from subprime investments.

The $900m fund will wind down over the next 12 months. It is managed by hedge fund Cambridge Place Investment Management, whose founders included Martin Finegold, founder of subprime lender Kensington Group.

Carlyle Group, the US private equity company, also delayed – at the last minute – the flotation in Amsterdam of an investment fund dealing in residential mortgage-backed securities in order to cut the offer price because of market volatility.

Carlyle said the fund had no exposure to US subprime mortgages. However, people familiar with the plans said the intended flotation had suffered knock-on effects of volatility. The company said it was confident the IPO would go ahead next week.

The developments follow the cancellations or postponements of several other debt offerings this week and come amid questions about whether the cheap debt that has fuelled the buy-out boom is still as easily available.

Dollar General, a leading US retail chain, was on Thursday forced to shelve its planned offering of $725m in “payment-in-kind toggle” notes – an aggressive financing structure that allows borrowers to choose whether to pay investors back in cash or additional debt. The company also added protective covenants to sell $1.2bn of high-yield debt.

Separately, CanWest MediaWorks, a Canadian media company, downsized its own high-yield offering from $650m to $400m.

“The balance between sellers of debt and buyers of debt is evening out,” said Eirik Winter, co-head of fixed income capital markets at Citi. “Investors are taking a step back and saying that we have a lot of cash, but we are going to be more cautious and will not buy just anything.”

Reporting by Joanna Chung, Peter Thal Larsen, Martin Arnold in London, Ian Bickerton in Amsterdam and Saskia Scholtes and James Mackintosh in New York


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