Tight credit may stymie takeovers

NEW YORK – The old adage on Wall Street is that corporate takeovers come roaring back from the sluggish summer months right after Labor Day. This time around that line of thinking may not hold up.

The massive leveraged buyouts that helped drive stocks higher this year appear to have evaporated as corporate credit gets tighter, and that will likely stymie any quick resumption of deal making.

Even some of the nation’s top buyout shops don’t see a quick revival. Blackstone Group chief operating office Tony James said in a recent conference call: “The sense that people will come back right after Labor Day is way too optimistic. It will take a while to work through these issues.”

Indeed, the cheap credit that fed the buyout boom has dried up – and that jeopardizes major deals still waiting for financing. Banks are said to be having a hard time finding investors to back loans for a number of private equity deals, including First Data Corp., TXU Corp., and H&R Block Inc.’s sale of Option One Mortgage Corp.

The closed credit market began as major banks, such as Citigroup Inc. and JPMorgan Chase & Co., have become nervous about massive loans on their books. And there is increasing pressure on private equity firms to renegotiate deals to lessen the amount of money borrowed.