The fact that top banks are on the hook for about $300 billion in bridge loan commitments to finance buyouts has been discussed ad nauseam. Barron's adds to the discussion by offering some specific examples of how the banks made themselves putty in the hands of sponsors. "Vivid" examples: Banks agreed to provide equity on top of debt. Covenants called for fewer maintenance tests and allowed the company to pay dividends to shareholders. The issuer could raise new debt that ranked higher than the LBO debt. And long-term assets could be sold to buy short-term assets. As if in anticipation of the current crisis, some sponsors inserted language that allows banks to raise interest rates by just a quarter point in the face of market turbulence. The article also notes that banks might offer to pay break-up fees to exit commitments. But the sponsor may balk, and companies may sue. In general, the specific effect of the crisis on bank earnings remains to be seen.

For more:
- here's the article from Barron's