Can new funds sustain Europe’s LBO boom?
The European leveraged buy-out market appears to have found its feet again after a nervous first quarter. But banks remain cautious about lending to highly geared deals. Can institutional investors such as collateralized debt obligation funds fill the gap?
Syndicated loan desks have made hundreds of millions of dollars from financing leveraged buy-outs (LBOs) over the past six years. But slowing growth in Europe and the US has made lenders nervous about the ability of LBO sponsors to service their loans. And the high-yield bond market - on which many LBOs rely for long-dated debt - is in turmoil following a series of defaults by telecom companies such as Winstar Communications.
The ability of private-equity investors to raise the debt they need to finance buy-outs is currently being tested by Merrill Lynch and CIBC who are arranging the £2.1 billion ($2.9 billion) financing of Yell, the yellow pages publishing company bought from British Telecom by Apax Partners and Hicks Muse Tate&Furst earlier this year.
In late July, Yell successfully raised £500 million in the high yield sterling and dollar markets.