Capital markets: Bond-financed buyouts raise risk concerns
Growth in high-yield market funding heightens risk on weaker credits.
In a month when JPMorgan announced the largest ever loan to back an acquisition – its sole $20 billion bridge facility for AT&T’s proposed purchase of T-Mobile USA – it seems slightly perverse to be focusing on the bond market’s role in driving M&A volumes. But despite headline loans such as that for the AT&T deal, the bond market is taking an ever more important role in this market – particularly lower down the credit spectrum. This could have worrying consequences further down the line.
The capital markets have always played an important role in US M&A, which has had a record start to the year, with $257 billion of deals inked in the first quarter. Sanofi-Aventis issued a $7 billion six-tranche bond to back its $20 billion buyout of US firm Genzyme, which attracted $17 billion of orders. Another acquisition-driven deal was the $2 billion bond issue from DuPont, part of its $5.8 billion acquisition of Denmark’s Danisco.
But the surge in high-yield issuance in Europe means that the bond markets are now playing an increasingly important role in Europe too – and among private equity buyers as well as corporates. The largest European buyout so far this year – the €3.16