Banks Will Lend, But Not Without Company

The credit markets may have uncrunched, but banks remain nervous about going it alone on private equity transactions.

One lender I spoke today  he was called by two very large sponsors who were in final rounds for a $190 million deal that required $100 million in debt financing. “I wanted to bring on more partners but the sponsors wanted someone to take a very large hold size and make sure the deal gets done,” the banker said.

It wasn’t clear whether the lender won that deal but the situation is clear: Private equity firms view bank clubs as risky.

“When you have 10 guys in your syndicate all wanting to make sure they get what they need, it makes it tough to pull the deal together,” one private equity executive explained.

“Banks aren’t committing massive amounts of money anymore,” adds Leonard Tannenbaum, CEO of Fifth Street Capital, which provides one-stop financing to the lower end of the middle-market.

Core middle-market deals, those in the $150 million to $500 million range, are easier to get done. “But you still need to club them,” Tannenbaum said.

Banks remain willing to underwrite larger deals — say, between $1 billion and $3 billion — but the majority of those transactions also are clubbed.

The only place that sources see lender pullback is in the mega-market. “Over the past few weeks, we’ve seen things get much tighter,” said one large-market buyout pro.

Take the $15 billion proposed sale of Fidelity National Information Services to a group of private equity firms led by the Blackstone Group. The deal involved a $10 billion financing package spread across seven banks. That transaction wouldn’t get done today, private equity and lending sources said.