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Opinion

CLOs underlie loan market’s pile into corporates

Roll-up acquisitions help to floor high-yield fundraising.

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Aggressive roll-up M&A strategy? Check. Unfavourable reporting announcement? Check. Margin loan written against chief executive’s shares in the company? Check. Some questionable financial arithmetic? Check. Share price collapse? Check.

The recent history of UK flooring firm Victoria Carpets may bear some unfortunate similarity to that of South African furniture retailer Steinhoff at the end of last year – minus, of course, any suggestion of fraud.

Victoria-Carpets-share-price-graph-300

The firm, which suffered a 37% collapse in its share price from 604p on Friday, October 26, to 380p on Wednesday, October 31, shows how the legacy of loose credit tells a familiar story across corporates large and small. Its shares traded as high as 882p in May this year and a £60.5 million equity placement in August was priced at 827p a share.

Its shares fell at the end of October, however, after the AIM-listed firm issued a profit warning – down by between 1% to 1.5% percentage points compared with consensus market forecasts – and news that it planned to issue €450 million of senior secured notes due in 2023 to repay its existing two-year senior bank facility.




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