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Credit Markets: End Of The World Meets Business As Usual

There was, to use the word of the decade, a sense of bifurcation Wednesday evening during a discussion of credit conditions.

Michael Cerminaro, a partner at the private equity firm Sound Harbor Partners, opened the event, sponsored by the business group ACG New York, with a discussion of the eurozone crisis, the risk of a default by Greece, and the potential of cascading sovereign defaults that could stretch across southern Europe and around the world.

“It’s morphing into a global banking crisis, which could threaten global capital markets,” Cerminaro warned.

This was followed by a panel discussion of current credit conditions for buying and selling companies. The mood was perhaps best summed up by Michael Zupon, who also happens to be a partner at Sound Harbor and is its chief investment officer: “Overall in the debt market, it’s a wonderful time to be investing. You’ve got low defaults and high spreads.” He did add, however: “The risk to the market is that we get a severe shock to the system.”

It was as if the two facets of the forum were addressing not just different markets, but different planets. At least ACG New York, the local affiliate of the Association for Corporate Growth, got the title of the event right: “The New Normal—Credit Crisis Redux.”

The markets are bifurcated in a variety of different dimensions, panelists concluded. Quality companies, with predictable earnings and good growth prospects, can command prices that are double-digit multiples of EBITDA, said Danny Rosenberg, a managing director at Sterling Partners, not unlike the peak of 2007. But if the story is ugly, so will be the price that buyers, strategic or financial, are willing to assign a company.

Likewise, mid-sized and large buyouts are getting done. But credit remains virtually unavailable for small businesses, those with EBITDA of less than $10 million, said Randy Schwimmer, a senior managing director and the head of capital markets at Churchill Financial Group LLC. And those represent the great majority of American businesses, and the primary generator of jobs for the economy.

Most panelists agreed the outlook is for slow growth, or something like it, not another plunge into financial crisis. As Rosenberg said, “If it’s a shallow recession or a shallow sloping recovery path, it becomes an issue of form over substance.”

I couldn’t help but to flash back to 2000, when people were saying the collapse of the dot-com bubble would be confined to those stocks, or to 2008, when they were saying the collapse of the subprime mortgage business would not spread to broader markets. I shudder to think of the impact of a sovereign default by Greece—or Italy.

At least we have the range of scenarios covered.

Steve Bills is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at