Greece's European creditors are playing a game of pass-the-parcel about who should stump up the money to avert a default at the end of June if Athens clinches a last-gasp deal this week on a package of reforms to unlock frozen bailout funds. Greece must repay the International Monetary Fund (IMF) 1.6 billion euros ($1.8 billion) by June 30 or be declared in default, potentially triggering capital controls to prevent a bank run and pushing it closer to an exit from the euro zone. However, euro zone governments say it is already too late to release the 7.2 billion euros left in Greece's bailout before the end of the month, since national parliaments would only approve the disbursement once the Greeks pass laws to enact their reform promises - a process known as "prior actions". Another possible source of quick funds would be for the European Central Bank to let the Greek government sell more short-term Treasury bills to Greek banks and others. Greek Prime Minister Alexis Tsipras has repeatedly appealed to ECB President Mario Draghi to loosen the noose on Greece in this way. But Draghi, facing strong opposition from hawks in Germany's Bundesbank and its allies on the ECB governing council, has said the bank would only allow more T-bill issuance once it was sure the member states would disburse the frozen aid. That, too, would come too late for the June 30 deadline. That leaves two other pots of money that could be used to give Greece a lifeline to repay the IMF: 1.9 billion euros in profits from ECB holdings of Greek government bonds bought in 2010-11, which were returned to euro zone member states; or 10.9 billion euros in loans earmarked for recapitalising Greek banks, which are being held by the euro zone rescue fund.
Either of those sums could be released by a unanimous agreement of the Eurogroup of euro zone finance ministers without prior parliamentary authorization, EU sources said. JUST ENOUGH Of the two, the "SMP profits" - from the acronym of the ECB's now-defunct Securities Markets Program - seems the most likely, diplomats say.
That is because the money has already been promised to Athens in 2012 if it completed its bailout program, but also because it is just enough to keep Greece's head above water without giving the Tsipras government any change to spend. Greece laid legal claim to the larger sum in the so-called Hellenic Financial Stabilisation Fund (HFSF) early this year, but euro zone ministers exasperated by Tsipras' anti-austerity rhetoric made Athens hand back the money, stating that it was for bank recapitalization and not general government funding. A statement agreed by the ministers in February made releasing either sum subject to strict conditions.
In theory, the transfer of the 2014 SMP profits is conditional on the conclusion of the bailout review, certified by all three lending institutions - IMF, ECB and European Commission - and the approval of the Eurogroup. As for the HFSF money, it was made subject to a request by the ECB and its banking supervisory arm. EU officials say some of that amount could be released after Greece completes the "prior actions", proving its willingness to turn reform promises into legislation. That would give Athens money to redeem some 6.9 billion euros in bonds held by the ECB that mature in July and August. "Clearly, if there's a deal, someone will have to come up with the money to pay off the IMF," a person familiar with the negotiations said. "But each institution is looking at the other and saying: 'After you'...'No, after you'."
Oct 16 Shadow banks are winning market share from US banks in the US leveraged loan and high yield bond markets as stricter regulation forces borrowers to cast the net wider to finance buyouts. Jefferies is the most high profile non-bank lender that private equity firms are turning to as heavyweight arranging banks shy away from loans that could incur penalties if deemed to breach leveraged lending guidelines. The firm recently underwrote the $4.3 billion buyout of business software maker Tibco Software Inc by Vista Equity Partners. It teamed up with two private equity lenders and just one bank - JP Morgan - that was willing to do the deal. Jefferies is also financing Vista's $1.5 billion acquisition of payment processing company TransFirst Inc with Nomura, Guggenheim Partners LLC and Apollo, sources said. Regulators are taking a tougher line on enforcing the guidelines, which were first announced in March 2013, to prevent risk building up in underwriting banks which regulators are ultimately responsible for as lenders of last resort. The guidelines view leverage over six times as problematic and also focus on a borrower's ability to pay off debt within a specific time frame. Jefferies is not a commercial bank and was not bailed out in the aftermath of the financial crisis. As a result, the guidelines do not apply to Jefferies or other firms that are well positioned to benefit from banks' pulling back."Our increasing success over the last ten years has come from sticking to our knitting and operating consistently with the same risk and business principles," said Richard B. Handler, chairman and CEO of Jefferies."Our track record of financing quality equity sponsors and companies with appropriate leverage and syndicating their credit successfully speaks for itself,"RISING TENSION
The Federal Reserve's rebuke of Credit Suisse in the summer for failing to adhere to the guidelines was a big wake-up call for Wall Street banks."The shadow banking sector stepping in is definitely the hot topic, and certain unregulated institutions in particular have been more active," said David Morse, a partner at Otterbourg. JP Morgan's CEO Jamie Dimon warned against the shadow banking sector on October 10, which he described as 'huge' and 'growing' and said poses a danger 'because no-one is paying attention to it'. Market players say that it could take at least another six months to see if non-bank lenders will become bigger players, but private equity firms are already taking note. Non-bank lenders are able to put more leverage on buyout loans. This can reduce the equity cheques that private equity sponsors need to write, which boosts their profit.
Vista turned to Jefferies when it bought Tibco after seeing the competitive debt package that Jefferies had put together for rival bidder Thoma Bravo. Tibco's debt package of around $2.9 billion includes loans and high-yield bonds and is about $200-400 million bigger than Vista's original arranging banks could provide, sources said. This trend is expected to continue. Private equity firms are increasingly able to share risk and co-underwrite loans with commitments of up to $200 million, primarily as buyers of the debt and direct investors. KKR, which underwrites its own buyouts alongside banks, participated in Tibco via Merchant Capital Solutions, a capital markets business that it created with the Canada Pension Plan Investment Board and Stone Point Capital. Apollo, and Ares through its partnership with GE, also stand to gain, while GSO, part of the Blackstone group, is an increasingly large player. Frustrated by banks' increasing unpredictability, private equity firms are also considering distributing debt themselves.
"If you want four banks to underwrite a $1 billion deal, you have to talk to eight. It's unpredictable and difficult," a US private equity sponsor said."Do we need to distribute directly ourselves? We have our own relationships," he added. SLOW CREEP A wide range of non-bank lenders, including banking and financial services group Macquarie, Business Development Companies (BDCs), insurance companies and hedge funds could also become more active in financing buyouts. These lenders could group together to finance deals that banks would not otherwise be able to do, or partner with banks to shoulder risk that helps deals to fit the guidelines. Although change is afoot, it is expected to be gradual. Non-bank lenders will struggle to compete with arranging banks' massive balance sheets, distribution capabilities and ability to support deals in the secondary market. Jefferies has a small but growing share of the $728 billion of US leveraged loans sold this year, and has moved up to 14th place in LPC's league tables in the same time from 22 in 2013. The firm sold a $425 million high-yield bond last week to further bolster the capital base of its lending arm. Competing with the firepower of big banks will still be difficult when fees are sufficiently tempting, as JP Morgan showed on the Tibco deal. Banks are able to do a couple of 'criticised' loans a year for a big enough incentive. Many believe that the greatest opportunity for non-bank lenders lies in the middle market, where fees are lower and lenders do not have to provide liquidity.