For the moment, the deal hasn't closed and TD hasn't had to make good on its commitments to lend and take an equity stake. But the minute the deal does close, TD is looking at a big markdown on the market value of the loan package.
How big? Well, there's $500-million of equity that by some estimates, is worth half what it was when the BCE deal was signed. That's based on a look at what's happened to other telecom stocks, which have fallen. Granted, they haven't fallen by half, but don't forget about the "leverage" in a leveraged buyout. It works on the downside as well.
And, on the $3.3-billion of loans that TD is on the hook for, there's almost another $300-million of pain, based on the current price of the average LBO loan in the open market, which stands at about 91 cents. (Back in June when the deal was signed, those loans fetched their full face value, according to S&P.)
The odds of those prices getting much better by the time the deal closes are not good. Supply and demand is just not on Mr. Clark's side. There's still a $230-billion (U.S.) backlog of high-yield debt and leveraged loans that banks haven't been able to unload onto investors, according to a report Thursday from Bank of America.
Accounting types point out that TD will be able to fudge the numbers a bit by reporting the loss "net of fees" made on the BCE deal, but no matter how you cut it, TD's loan is well under water.