The Last Hurrah
With $152 billion in loan commitments looking for homes, is it any wonder that underwriting banks have thrown etiquette to the wind in what may become a mad scramble to free up their soon-to-be-bulging balance sheets?
Here is how the underwriting and syndication dance is supposed to work: a consortium of underwriting banks commits to a deal (the au courant mega deals of the last two years) and then, via an intricately choreographed and coordinated sell-down (at close or immediately post-close), the underwriters, in lock step, syndicate all or as much of the debt as they can.
It is only then that the market opens to a free for all of secondary trading, i.e., anyone holding the paper can sell to anyone else that they want. That's the script, and that's how the show has played out ever since the '80s, when syndication departments were created.
No more!
Enter, stage left, Credit Suisse who jumped the gun and pre-sold its position in the Harrah's Entertainment deal well ahead of the January close and without consultation with its syndicate brethren. In the past, "breaking the syndicate" would create hell to pay for the violator, a veritable community shunning.
Now Credit Suisse is congratulating itself for its deftness and the remaining underwriters are forced to hold paper that the market has devalued to a level far, far below any profit point for the underwriters. Odds are it is likely the underwriters will be holding this particular paper for some time.
Yet, if Harrah's can continue the success it has been having of late and can de-lever smartly, perhaps the smiles may return to the underwriting banks after all.
And it won't be Credit Suisse having the last hurrah.
