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Capital Markets

Leveraged recapitalizations: Weetabix takes the biscuit

UK breakfast cereal maker Weetabix will be one of the first companies this year to test the market for leveraged recapitalizations. The deal, expected to come to market in the next few weeks, will be lead arranged by JPMorgan. It takes out the £450 million ($803 million) leveraged loan backing the £642 million buyout of Weetabix in 2004 by private equity firm Hicks Muse Tate and Furst.

The original loan was one of the first to include flexing down of margins after the deal closed – now a common component of European leveraged loans. The deal was made up of £330 million of senior debt and £120 million of 10-year mezzanine.

The leveraged recap market broke all records in 2005, and market participants expect more in 2006, as private equity firms look to such structures to take dividends out of their assets. However, as assets moved down the credit curve last year, expected yields consequently moved up, ending the year up more than an entire percentage point from the start of the year, which could mean the leveraged recap market could already have hit its peak.

One high-yield market participant says: “Yields have moved up to north of 8% from the start of last year at 7%.

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