Sunday, March 09, 2008


The credit crunch is hitting prime markets

Credit is continuing to contract with evidence that banks are getting antsy about extending credit to even highly safe investments.

Increasing volatility and concern among banks about leverage levels, combined with fear that the global credit crisis could worsen, mean some lenders are asking for more securities as they question the value of even the highest-rated securities. Peloton Partners, a London-based hedge fund set up by some former Goldman Sachs partners, was forced last week to liquidate a $1.8 billion fund that invested in top-rated debt. The fixed-income fund of Kohlberg Kravis Roberts & Company was in talks with lenders last month about delaying some debt repayments.

"This phase has been driven by liquidation, and it raises the question, are others vulnerable, too?" said Vivek Tawadey, a credit analyst at BNP Paribas in London.

It's a good old fashioned panic. The question at the end of this snippet is obviously yes and not because other hedge funds hold particularly risky debt but because when a panic begins even the best get a hair cut. Credit/leverage is a two way street and the magnified effects of shrinking credit will hit some that may surprise you.



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