The conduit financing approach
WHAT DO BAA, Thames Water, London City Airport and Associated British Ports have in common? They have all recently been sold or are in the process of being sold in leveraged acquisitions that are expected to be refinanced in the corporate securitization market. As such they can form an orderly queue behind a list of household names that have found securitization a cheap and increasingly flexible option to refinance expensive acquisition lending. But although there has been a steady stream of private buyout-linked trade receivables deals for many years, large public ABS exits from private equity-backed LBOs have always been rare. That could be set to change.
Any potential buyer of an asset has always had to find the lowest price, but the classic private equity space has traditionally been sub-investment grade – turnaround situations that are not really financeable in the capital markets. But for buyouts of cash-stable, established businesses, it is now a different story. Heralding the trend was the Hertz LBO refinancing completed at the end of 2005. The $4.3 billion deal won several awards (including Euromoney’s structured credit deal of the year for 2005) and really woke the market up to the cost-of-capital savings that securitization can deliver to an LBO.
