Buyout Game may soon see nature of love, Banks and Buyout firms will divorce

--for the past four years, WS and buyout firms have lived in a gilded, if not complacent, harmony. A coterie of banks supplied the ideas, while arranging debt and equity to back the buyout funds' huge deals. They in turn paied huge fees. --now we may get to see how much love flows between the two. It promises to be quite a reckoning, one that should reveal the new countours of WS. --the test arises from sharp changes in the debt markets. Now investors are slow to step up to the plate. Some $300 billion in loans and high-yield debt is coming up for sale soon, 4 times the amount in 2004. --This both heartens and terrifies WS banks. They relish the opp to apply some leanding discipline that evaporated during the leveraged buyout craze, but dread the loss of all those fees. --it is hard to sense a joyful compeuppance among bankers. The effect is something like a beleaguered chauffeur who, after years of back-seat direction, finally switches role with his passengers. --no doublt underwriters and borrowers will be more cautious. But some of this caution may be too late. Across the Street there is a gnawing sense of foreboding about this incoming wave of financings. That's because the banks have put up immense bridge laons to back the deal, setimated at some $13 bil for just 6 troubled deals in the last few weeks. If hedge funds, insurers, and other investors won't take the paper, the banks are obligated to put them on their books or sell at a loss. --Soem have also exteneded their warehouse lines of credit to specialized hege funds used to buy this debt. These lines of credit - also deployed in teh subprime-mortgage securities marekt - allow funds tobuy securiteis while keeping some risk at the banks. --firms like KKR are prvoing amenable. KKR's vision to that of a self-contained financing biosphere., where it can raise capital, ufnd deals, and place debt and equity. Of course, that is a model taking shape at GS --The appeal of the model is tantalizing for banks, which are realizing they are putting increasing amounts of capital at risk for others' benefit. --Who need these the buyout guys? Divorce....