The global credit crunch has left a handful of banks holding almost $22bn (£10.7bn) of private equity financing as investor appetite dries up amid increasingly jittery credit markets.


A Chrysler Sebring. The private equity group Cerberus insisted that its buyout of the car giant stayed on track

Two major and closely followed debt sales on both sides of the Atlantic were postponed yesterday - a further blow to investor confidence that threatens to put the brakes on the long-running mergers and acquisition boom.

Bankers to private equity firm KKR struggled to sell on debt that was used to finance the purchase of Alliance Boots, the first leveraged buyout of a FTSE100 company. Meanwhile, in the US, JP Morgan was left holding $12bn of debt after failing to offload loans that had been used to finance Cerberus Capital Management's acquisition of Chrysler, the loss-making American car giant.

Both deals join a growing list of at least 35 refinancings that have been postponed or restructured in recent weeks.

The International Monetary Fund warned yesterday that "risks have increased and credit markets could remain volatile in the period ahead with a further repricing of some credit products".

It said that it did not yet fear a major "credit crunch" was likely, with the risk contained to certain parts of the markets. However, it added that the problems in the troubled US sub-prime mortgage market looked to be worsening.

The eight banks holding the Alliance Boots debt, including Deutsche Bank and JP Morgan, managed to sell £1.75bn of it. But they were forced to sell the debt at a 4pc-5pc discount, reducing the fees they collected on the deal. The new owners of Alliance Boots - KKR and billionaire Stefano Pessina - will pay between 0.25pc and 0.5pc more interest on the debt, which will cost them an additional £2.5m in interest payments a year.

However, the banks were forced to postpone the sale of a further £5bn of Alliance Boots debt. "We will come back when market conditions are a bit more stable," said an executive at one bank.

Private equity group Cerberus insisted that its buyout of Chrysler remained on track, despite having to postpone the sale of $12bn in debt needed to finance the deal.

Cerberus was seeking $20bn in loans - with $12bn earmarked for Chrysler's carmaking operations and a further $8bn to fund its finance businesses once it is separated from Daimler, which is transferring the company to Cerberus debt-free.

The underwriting banks - led by JP Morgan with Bear Stearns, Goldman Sachs, Citigroup and Morgan Stanley -have been marketing the loans to institutional investors since late June, but recent turmoil in the credit markets has left investors with scant appetite for the loans.

Abandoning the planned sale means banks will now keep the $10bn of loans for the auto unit on their balance sheets until a later date. Daimler and Cerberus itself will buy the remaining $2bn.

Figures suggest June was the worst month in two years for junk bonds and risky corporate loans, and prices have continued sliding for much of July as investors have become more risk-averse.


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