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LBO Firms Push The Leverage In Europe

This article appears courtesy of Institutional Investor

Source: Corporate Financing Week

Matthew Craft

The recent wave of large leveraged buyouts in Europe is putting strains on credit markets and prompting concern that participants may be planting the seeds of their downfall. Leverage for LBOs larger than €500 million ($605 million) has climbed to 5.9X EBITDA compared to 4.7X in the U.S, according to data from Standard & Poor's.

"Europe is just going a little further out on the limb," said a partner at a well-known buyout shop. "The question is when the hell does the liquidity dry up and why? That's what everybody is trying to guess."

In recent weeks, buyout shops have announced plans to take over Dutch media giant VNU NV for €7.3 billion ($8.9 billion) and are still working on taking private Denmark's TDC A/S for $15.6 billion. And it isn't just private equity firms launching larger deals, noted Paul Watters, a director on S&P's leveraged finance team in London. Ineos, the British chemical company, reportedly plans on issuing €3.1 billion ($3.8 billion) in bonds to finance its acquisition of Innovene, the largest high-yield deal in Europe.

"The credit metrics and quality are more stressed than anything we've seen before in Europe," said Watters.

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