Blackstone COO sees slower debt markets recovery

By Megan Davies

MUNICH (Reuters) - Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz) Chief Operating Officer Hamilton James said on Tuesday that debt markets had weakened materially in the last month and would be "slower to recover, not faster."

Speaking on the sidelines of a private equity conference in Munich, James forecast it would take until next year for banks to get through the backlog of leveraged buyout debt.

Blackstone is managing its business as if there were a U.S. recession, he said, adding that the economy was definitely slowing.

Markets seized up in the summer after the subprime turmoil, bringing to an abrupt halt a buyout boom that broke records for the largest deals ever struck. Financing large leveraged buyouts was off the table, while deals already struck were put on shaky ground.

James said some of the debt backlog would take care of itself if some deals don't go through -- "if Clear Channel doesn't happen, for example."

The $20 billion buyout of radio operator Clear Channel Communications (CCU.N: Quote, Profile, Research, Stock Buzz) by Thomas H. Lee and Bain Capital Partners is yet to close. Clear Channel shares have been trading significantly below the $39.20 offer price, indicating investor concern about whether the deal will fall through.

Blackstone itself has a deal on its hands that may not work out -- the $6.76 billion buyout of Alliance Data Systems Corp (ADS.N: Quote, Profile, Research, Stock Buzz). In January, Blackstone told Alliance Data that a regulator was making demands that were too burdensome. That prompted Alliance Data to sue Blackstone to complete the deal, although it recently dropped the lawsuit and Blackstone then said it remained committed to finding a way to do the deal.

Asked if he was still aiming to get the transaction completed, James said Blackstone was "still working on it."