Banks and investors who are losing money on the record $1.7 trillion of high-yield, high-risk loans made in 2006 and 2007 are charging borrowers an average of 1.64 percentage points more in interest to amend borrowing agreements and avoid default, according to Standard & Poor's. That's the highest since 1997 and almost eight times more than the first half of last year.I'm no financial expert, but generally speaking, when you breach the covenants in your debt obligations, lenders can pretty much take a blowtorch to your business.
Lenders, reeling from an almost 20 percent decline in loan prices, are punishing borrowers in jeopardy of breaking their loan agreements as the economy teeters on recession. As many as 135 companies are in danger of breaching targets set by their banks, S&P says. Sam Zell's Tribune Corp. and Leon Black's Realogy Corp. may soon trip their covenants, according to Moody's Investors Service, which like S&P is based in New York . . .
. . . Tribune, the Chicago-based media company bought by billionaire investor Zell last year, needs to sell the Chicago Cubs baseball team and improve revenue to avoid breaching its covenants, said Mike Simonton, an analyst at Fitch Ratings in Chicago. Tribune has $12.5 billion of debt and its loans were quoted as low as 37.5 cents on the dollar yesterday, according to S&P.
I'm also no expert on the sale of ballclubs, but I do seem to recall that Zell and Major League Baseball itself had desired that the purchase of the Cubs be a debt-heavy transaction, whether it be to favor one potential ownership group or otherwise. As I sit here watching the financial system implode, I can't help but think that if someone wanted to swoop in at the last minute and give Zell a bunch of cash instead, they'd get themselves a pretty good deal on a pretty nice asset.