was a popping sound," writes Andrew Sorkin in today’s
NYT, and although such sentences have a tendency to generate another type of
sound entirely from their more sophisticated readers, he’s actually right this
time. For he’s not talking about the stock market’s intraday volatility –
the big news which made the front page and which really isn’t news at all. Rather,
he’s talking about the fact that the credit markets in general, and the LBO
market in particular, have now "slammed shut".
of the proposed $15 billion sale of Cadbury Schweppes’s North American beverage
unit is just the latest datapoint confirming this: anybody who wanted to sell
out to private equity buyers is going to have to wait, now, probably at least
until September. I got an email yesterday from a friend in the M&A industry:
"the LBO engine has completely shut down at least for the rest of the summer,
I’m hearing". Inevitably, the proposed IPO of KKR is going to be postponed.
And every major Wall Street bank is going to be left holding some rather radioactive
junk debt, Cerberus-style.
But the good news is that the stock market is still looking reasonably healthy:
it’s worth remembering that the S&P 500 is still up more than 16% from where
it was a year ago. For all the billions that private-equity shops were able
to throw around until now, most of the stock market is still comprised of relatively
unlevered and profitable companies which should be able to weather a credit-market
contraction without any difficulty. Steve Schwarzman might
not be a happy bunny today, but I don’t think Warren Buffett
is losing any sleep.