Short-term credit markets are looking healthier again Monday, with Libor dropping, commercial paper rates easing and bank funding costs settling in at what looks to be the new normal. In other words, life is getting easier for banks.
But at the same time, it's getting rougher for other borrowers as investors continue to realize that while the crisis in banks may have passed, the strains on the economy have not. The window is still largely shut for corporate borrowers in the bond market, and private-equity firms report that the availability of loans for any sort of buyout is getting scarcer.
So called "bid lists" of corporate debt are pushing down prices as funds and banks try to unload corporate debt garage-sale style. More than twice as many corporate loans fell in value last week than rose, according to Reuters Loan Pricing Corp.
"October month-end valuations were atrocious and the scramble by investors to retrieve cash from credit funds will remain frantic or even intensify, as a result," said Suki Mann, credit strategist at Societe Generale in London. "The Street bid will be a distressed-level one for non-distressed assets and cash spreads will remain at elevated levels for the foreseeable future."
The upshot for Canadian companies is that access to credit will continue to be constrained when it comes to borrowing in the bond market, but it may be a little bit easier to get the bank loan officer to return your call.
