Buyout Debt Is Surging to Levels Not Seen Since Before the Financial Crisis
Bankers are looking to sell off approximately $138 billion of buyout debt in the coming months, the highest amount since before the financial crisis, according to JPMorgan Chase.
Borrowers are beginning to bring deals to market early, looking to secure investor demand before a wave of competing offerings arrives, Bloomberg reported. Most of the issuance is likely to hit the market ahead of the U.S. elections in November.
The expected issuance will span a range of transactions including take-private deals, corporate asset separations and buyouts involving existing private equity owners. Borrowers behind highly sought after deals should have more leverage to negoitate lower borrowing costs and looser terms, while riskier transactions are likely to come with higher interest rates and tougher lender protections.
JPMorgan EMEA Leveraged-Finance Head Noah Roth said the deal activity has created an unusually large pipeline on both sides of the Atlantic.
JPMorgan figures found that there is approximately $92 billion in the U.S. for financing leveraged M&A activity, and nearly $46 billion in Europe, excluding debt to fund data centers, which could increase that number by nearly $80 billion in the U.S.
Overall demand should be strong enough to take down the expected supply, helped by continued inflows into credit funds and robust issuance of collateralized loan obligations, which are major buyers of leveraged loans. Still, a crowded market could give investors more bargaining power, allowing them to be more selective about teh companies, industries and private equity sponsors they are willing to purchase.
Jeremy Duffy, chair of Cahill Gordon & Reindel LLP’s European leveraged finance practice, told Bloomberg that lenders are likely to remain selective, paying close attention to the borrower’s industry and capital structure.
U.S. deal activity has continued to be on the rise, with bankers remaining active through the summer months.
In August, Victory Capital Holdings announced plans to buy First Eagle Investments in a transaction that includes $3.5 billion of term loan B financing.
Meanwhile, Goldman Sachs is also arranging $1.95 billion in secured debt to support Amwin’s group’s purchase of Steadfast Group. The financing wave is expected to extend into next year, with several transactions already in the pipeline.
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