'Merger Mondays' may be fading
NEW YORK --Monday, the day when Wall Street unveils some if its biggest deals, may not be the same for a while. And that could cause more jitters in stock and bond markets, following their worst week in nearly five years.
For several years, the size and volume of deals announced at the start of the week set the tone and pace for the global financial markets for the next five days, more often than not sparking rallies that sent shares to new highs.
But given the rout in the markets last week, "Merger Monday," as the day is known, may be on hold -- indefinitely.
Rather than negotiating new deals to take public companies private with billions in easy and cheap credit, many bankers and private equity firms spent the weekend trying to figure out what to do with dozens of pending deals that are now faced with the higher cost of debt. Some bankers said yesterday that they were willing to wait out the turmoil, while others were discussing the prospect of paying breakup fees to get out of some transactions.
After the stock market's 5 percent drop and a sharp jump in yields on high-yield debt last week, many investors spent the weekend trying to regroup. Some began turning over stocks and bonds in search of bargains. Portfolio managers said they were raising cash for potential shopping trips in distressed pockets of the market.
"We see extraordinary activity," said Girish V. Reddy, managing partner at Prisma Capital Partners, a hedge fund that invests in other funds and has been approached in recent days by managers who have opened funds to new investors. "The traditional distressed space has kind of come alive."
That is not to say that a wave of buying will lift the market.
Reddy and others said it has become exceedingly difficult to predict the course of an ever more volatile market. Just consider the last half-hour of trading on Friday, when stocks plunged after having recovered most of their losses for the day.
"You still have a couple of days before month's end," he said. "People may do some irrational things to balance the books. That is adding to the complexity."
The Standard & Poor's 500-stock index ended last week down 4.9 percent, its worst weekly performance in nearly five years. It is now up 2.9 percent for the year, down from 9 percent earlier this month.
The Dow Jones industrial average is up 6.4 percent for the year but has lost about 735 points, or 5.3 percent, since it hit 14,000 a week and a half ago.
In the debt markets, the yield on junk bonds, which are the most risky, has spiked to 8.7 percent, up from 7.7 percent a month ago, according to KDP Investment Advisors, a research firm. The spread between high-yield bonds and Treasury debt, a crucial indicator of the premium investors want in exchange for holding risky assets, has nearly doubled since early June.
Wall Street bankers assert that the economy and companies they are raising money for remain healthy, but acknowledge they may need to change the terms and price of debt they are trying to sell. Some say they would be willing to hold onto loans, rather than sell them at a loss.
With several big offerings yet to be marketed, the impasse between banks and investors could take a few weeks to several months to play out. 