What Debt Market Troubles?

While the underwriters for the Chrysler and Alliance Boots buyout deals find themselves stuck holding the bag, New York sold $850 million in bonds on Tuesday without breaking a sweat.

New York City has never looked better to investors, steam pipe blasts and all. Mayor Michael Bloomberg's business savvy and conservative fiscal strategies have paid off, as the billionaire politician led to the city to a record budget surplus of $4.7 billion last year.

That's among the reasons why in June, Standard & Poor's boosted its rating for the city's $35 billion in bonds up a notch to "AA" from "AA-minus." Fitch followed suit late with an upgrade to "AA-minus" from "A-plus," and Moody's just recently lifted its rating to "Aa3" from "A1" in mid-July.

But as the Big Apple basks in its successful bond sale, bankers are finding that they may have drunk their well of cheap debt dry.

Bankers representing Cerberus Capital Management apparently have postponed plans to sell $12 billion in debt to complete its purchase of Chrysler, and so the banks are likely to end up funding the deal largely by themselves.

Meanwhile the banks underwriting Kohlberg Kravis Roberts' purchase of Alliance Boots failed to sell $10 billion in bonds, and will also have to carry the debt for now.

Investors are becoming more risk averse as Wall Street wonders just how deep the fault lines run in the beleaguered mortgage market. As junk bonds fall out of favor, tried and true municipal bonds seem to be picking up business.

New York City has built itself so powerful a brand that 51 percent of the $700 million in bonds the city had originally planned to sell came from individual investors. Given that level of demand, the city boosted its offering to $850 million.

You've heard about running the government like a company? Maybe some companies should be running themselves like the government.

by Liz Gunnison