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Asset-backed financing proves popular for private equity firms, says Demica

Private Equity (PE) houses are increasingly turning to asset-backed finance as a way of reducing the burden of expensive senior debt and improving liquidity in the wake of Leveraged Buyouts (LBO), according to research from Demica.


Over 60% of top PE organisations stated that securitisation is becoming a more important source of replacement capital to ease debt repayment schedules and respondents estimated that a significant proportion (12%) of deals already employ trade receivables securitisation.

Given the current surge in LBO activity, the cost of debt burden is a growing issue for LBO firms. The majority (57%) of respondents felt that leveraged finance would become more expensive over the next two years; and two thirds pointed to a consequent focus on the terms of 'carve out' provisions in buy-out financing agreements, building in the flexibility to accommodate future alternative financing structures.

Interestingly, 62% of survey respondents stated that the role of securitisation in providing alternative sources of liquidity and its impact on amortisation/repayment schedules was becoming increasingly important.  They estimated the proportion of post-LBO transactions to be using securitisation today to be some 11.9%, rising to 16.3% by the end of 2006 – a growth rate of 37% in the use of post-LBO securitisation over the next two years.

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