radically changed from before the credit crunc
$3bn leveraged loan deal is completed
By Anousha Sakoui
Published: July 28 2008 22:37 | Last updated: July 28 2008 22:37
Bankers have completed one of the biggest sales of risky leveraged loans in Europe since the credit crunch in a sign that the right deals can get done in spite of tumbling prices in the secondary markets.
The sale of $2.98bn of loans backing the $4.1bn buy-out in May of ConvaTec, a wound-care business, by Europe’s Nordic Capital and US-based fund Avista Capital Partners was completed late on Friday, even as the syndication of another big European financing was canned.
Ineos, one of the the world’s largest chemicals companies, last week saw bankers shelve the sale of €620m of debt put in place to finance an acquisition. Bankers said Ineos had struggled partly because financing remained generally more difficult for cyclical industries such as chemicals.
But the secondary loan markets have endured a sell-off in weeks, with the average price bid for risky leveraged loans dropping by more than 3 percentage points over the past month to 88.58 per cent of face value, according to S&P LCD, the market information service.
The loan markets had rallied in April after the rescue of Bear Stearns, the US investment bank, had alleviated fears of systemic risks across financial markets.
Pricing remained firm in May and June, which allowed banks to offload billions of euros of debt funding for buy-outs agreed before last summer, but sentiment has since taken a turn for the worse.
Some bankers are positive, however, believing the secondary markets are illiquid, with small trades causing big price fluctuations, and therefore do not accurately reflect the health of the leveraged loan market.
Robert Dorr, a loan banker at JPMorgan, said: “The primary markets are offering more attractive deals with lower leverage and better covenant packages, while the secondary market is still trading the pre-crunch, more aggressively structured deals.
“The ability to raise financing in the leveraged debt markets is binary right now – either it works really well or it struggles.
“It depends on the sponsor, the deal structure and how defensive the sector is.”
Another loan banker said he believed he could sell up to $4bn of loans for the right borrowers, adding that demand was mainly from European banks, with only about 10-15 per cent of debt being placed with funds.
This is radically changed from before the credit crunch, when funds made up the majority of the market.
Copyright The Financial Times Limited 2008
http://www.ft.com/cms/s/0/100095c4-5ce1-11dd-8d38-000077b07658.html