A prime example of this predicament is the Alliance Boots deal. The underwriting banks are stuck with £9 billion ($18 billion) of debt issued to finance the retailer’s takeover by Kohlberg Kravis Roberts. It’s even worse in the TXU case, where Citi and JPMorgan and four other banks have been saddled with $26.1 billion of debt.
Hedging this risk effectively has become a real challenge. Using single-name credit default swaps to hedge is almost impossible because spreads are wide and liquidity has dried up.
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