Is the bubble becoming explosive?
Here is what the Wall Street Journal reports.
Ng, Serena, Gregory Zuckerman, and Michael Hudson. 2006. “$60 Billion in Two Days: A Spate of Mergers, Buyouts Announced Across the Globe.” Wall Street Journal (21 November): p. C 1.
“More than $60 billion in deals were consummated in the past 48 hours of frantic merger and buyout activity, not including the debt assumed from target companies in these transactions, according to Dealogic, a research firm. The deals included a $20 billion private-equity bid for real-estate giant Equity Office Properties Trust and stretched from Europe to Canada to the U.S. More than 35 deals were announced globally, leaving bankers looking broadly to other sectors — including health care, technology, gambling and home building — for the next megatransactions.”
“The common denominator now is debt. In the U.S., corporations have sold $109 billion in “high yield,” or junk, bonds and raised an additional $593 billion in junk-rated bank loans so far this year, according to Dealogic. Last year they raised $707 billion in bonds and loans in the U.S.”
“Yet there are signs emerging that large debt loads could begin to weigh on companies involved in the deals. Some of the bonds issued by both HCA and Freescale were “toggle” bonds, which allow the companies to choose between paying interest in cash or in the form of additional bonds. That’s a strategy companies adopt when they worry that they might be short of the cash flow needed to pay off interest in the short term.”