‘Gumming up’: unwanted debt from buyout boom stuck at investment banks

Wall Street’s trillion-dollar financing machine is gummed up, creating a new hurdle for private equity titans who for years had easy access to credit.

Tens of billions of dollars worth of debt has been stuck on bank balance sheets left over from financings that had been struck before a sell-off rattled financial markets and an economic slowdown gripped the global economy.

The sharp fall in the value of corporate bonds and loans has banks such as Bank of America and Goldman Sachs stomaching large losses already on the financing packages they have not yet sold on to the investing public.

And bankers are reluctant to cut new deals for private equity groups before they are able to, a process that top executives said would likely be measured in quarters, not weeks or months. The terms they are offering are worse after this year’s losses in public markets, making any private equity buyout far more expensive to finance than a deal contemplated months ago.

“The traditional...

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