Bonzai Pipeline

You know it’s a busy December when bank meetings are outnumbering holiday parties.

By one calculation, thirty-one leveraged transactions launched last week, twelve on Wednesday alone. There were the de rigueur dividend recaps – Decision Resources, Earthbound Farm, Flexera Software, Harbor Freight, HDT Worldwide, Hyland Software, Novelis, and TARGUS. But there were also some genuine LBOs in the mix: Advantage Sales, FilmYard, Sunquest, Syniverse, Transtar, and UTEX.

We run through the roll call for a subtle corporate finance point: That’s a lot of deals.

The reasons for this year-end crush are also not tough to figure out. Indications earlier in the quarter were that deal activity would be spurred by private equity fears about a capital gains tax increase next year.

But when the November election mooted that concern, the next prime anxiety suspect was the euro crisis. What if the turn of the year brings a new shock to overseas markets—a kind of financial Icelandic volcano—and deals are grounded at the airport?

Or it may have been as simple as “Hey-we-booked-the-hotel-anyway-let’s-have-the-meeting.”

Whatever the case, syndication teams flooded investors around the clock with emails about transactions launching. The effect of this calendar crush was two-fold. First, for the sell-side, arrangers had a tricky time figuring out how to price the loans.

Like the real estate market, the loan market sets prices—spreads, fees, and floors—based on “comps.” But when you have dozens of transactions coming out at once, it’s hard to know what a comparable deal is. And even harder to judge where the market is until the dust settles and arrangers can figure out buyers’ appetite.

That’s why so many deals debuted on investor screens with the identical price, spread, and floor: “N/A.” Seems leads waited until the last minute to show their hands.

For the buy-side, the problem was summed up by one account, “I feel like a one-legged Riverdancer.” How can you honestly evaluate so much paper at one time? You can’t, which meant that lesser deals would be ignored. “Tell me where you care,” sales desks were beseeching buyers for a bid. But for overworked funds, there was often no price.

That’s why seasoned bankers warn issuers of the dangers of launching into a crowded calendar, particularly for dividend recaps which don’t require a year-end closing. But the lure of easy money has proved irresistible.

One expected side-effect of all this issuance hasn’t materialized. Bargain hunters had hoped supply/demand dynamics would favor primary issues and push secondary loan prices below par. They didn’t. But underwriters may yet sweeten new loan offers to avoid getting stuck with unsold paper over year-end.

As one market wise-guy put it, “They’d rather be hungover on January 1, than hung over December 31.”

Randy Schwimmer is senior managing director and head of capital markets at Churchill Financial, as well as columnist for its weekly “On the Left” newsletter. The opinions expressed here are his own. Reach him at