Wall Street banks, burned by commitments to fund leveraged buyouts before the credit crisis, are reducing the chances they'll be stuck with junk-rated loans again by getting investors to take on that risk.
Banks and borrowers are benefiting as investors agree to set aside money to finance acquisitions, such as Carlyle Group LP's takeover of Ortho-Clinical Diagnostics Inc., weeks before deals are closed. Money managers often get paid nothing for being in limbo while letting issuers lock in their interest rates. Usually, banks give investors their allocations only days before providing loans.
The terms reflect investor willingness to take on more and more risk as they compete for higher-yielding assets in a sixth year of near-zero interest rates from the Federal Reserve. Bankers are taking advantage of such demand to make it less likely they'll be stuck with a deal like the 1989's "Burning Bed," the junk financing for Ohio Mattress Co. that left First Boston Corp. in need of a bailout from Credit Suisse Group AG.
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