Could Citi’s Deal Signal a Turnaround?

During this credit crunch, many banks have been looking to offload loans but there have been few takers. Citigroup [[c]] however, seems to be close to a deal to offload $12.5 billion in leveraged loans. Many of these loans have been used to finance corporate takeovers. The potential buyers appear to be Apollo, TPG and Blackstone. Could this deal signal a turning point in the markets?

The twist of this deal though, is that some of these firms will merely be buying back their own debt at a discount. This would be like a home owner who borrowed money for a mortgage now being able to pay back only a smaller percentage of their loan if they pay it off at once.

Private equity firms which have struggled for financing for leveraged takeovers are now setting their sights on the troubled credit markets. If this deal is indicative of a longer term trend, more of these firms could buyout their own or other’s debt and this could inject some much needed liquidity in the credit markets. Of course buying back your own loans at a discount is significantly different from buying loans from firms which may or may not be troubled and only future loan buyout deals will tell if the bottom has been hit.

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