Sign Of The Times

Sign Of The Times

From the WSJ:

“Credit has gotten so tight in recent weeks that companies contemplating a bankruptcy filing can’t find the cash needed to get through the process.

This multibillion-dollar corner of the lending market — debtor-in-possession and exit financing — has been rocked by General Electric Co.’s recent, undisclosed decision to largely halt lending to companies in bankruptcy-court protection or near it, said several bankruptcy lawyers and financial advisers. GE is one of the world’s largest such lenders, last year doing $1.75 billion in restructuring loans.

Debtor-in-possession, or DIP, financing is essential for the lawyers, layoffs and other restructuring necessary for a company’s rebirth. Exit financing is used when a company “exits” reorganization. Banks have been eager to take part in this market because the loans are the first to be paid back and command high interest rates.

Without the lending lines, companies that would normally survive bankruptcy will have to quickly sell assets. Potential buyers may not be able to borrow either, meaning companies could be forced to liquidate immediately instead of working out their problems. That could cost tens of thousands of jobs across the economy.”

I don’t understand why no one is making these loans, if they get high interest rates, are the first to be repaid, and if the company seeking the loan has enough assets to make repayment likely. Heading into a recession, I’d think it would be worth snagging perfectly good business opportunities. Is every company on earth hoarding cash against the Apocalypse, or what?

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