Last week I had the privilege of meeting with the senior leadership of one of the Federal Reserve Banks. For close to three hours we discussed the middle-market financing environment and the ramifications for smaller companies. Not only was it an incredible opportunity to interact with the people charged with overseeing monetary policy, it also gave me […]Continue
(Reuters) – Large European private equity buyouts are on hold until capital markets revive, which is unlikely to happen this side of Christmas as leveraged loan and high-yield bond markets remain weak, bankers said on Thursday. Dysfunctional financing markets are threatening new buyouts such as the 1.5 billion pounds ($2.3 billion) sale of British frozen […]Continue
(Reuters) – American Airlines may be the most likely big U.S. airline to go bankrupt, but the sum of its hardships — high labor costs and weak cash flow — do not add up to an imminent Chapter 11 filing, according to analysts who study the carrier’s finances. Shares of American’s corporate parent, AMR Corp, […]Continue
For years, municipalities have been kicking the proverbial can down the road, hitching bonds, pension and revenue estimations to over-optimistic expectations of home prices’ appreciation—and, by direct extension of this, over-inflating their tax projections. If Meredith Whitney is to be believed, the United States is still facing potentially hundreds in billions of dollars of municipal […]Continue
Rally Software, the Colorado-based software technology firm, has secured a $20 million round of fundraising from Meritech Capital Partners. Prior investors and debt providers include Mohr Davidow Ventures, Boulder Ventures, Mobius Venture Capital and Vista Ventures as well as Square 1 Bank.Continue
Two weeks ago, many of us gathered in New York to attend the Symposium on Middle Market and Mezzanine Finance, an annual event where many of the leading providers of junior capital convene to discuss the state of the market.
Interestingly, the attendees were rather upbeat. Yes, participants were realistic and conceded that leverage levels had risen dramatically, particularly in the last two months and, for larger middle market transactions, are approaching 5.0x total debt to EBITDA. They also acknowledged that pricing had declined during this same period with mezzanine pricing, even on smaller deals, hovering around 14%, and unitranche pricing declining 100-150 bps.Continue
Recent IPO filings by the likes of Freescale Semiconductor Inc. and HCA Inc. may lead some to conclude that mega-buyouts circa 2005-2007, once at grave risk from the recession, are finally in the clear.
That may turn out to be the story. But an article published last week by three credit analysts at ratings agency Standard & Poor’s—Allyn Arden, William Wetreich and Kenneth G. Drucker—suggests many of the largest deals from the golden age of private equity remain at risk of defaulting on their debt obligations (see table, next page). Were the economy to stall, or worse, they could well go belly-up.Continue
For our final issue of 2010, while others are sifting tea leaves, reading tarot cards, or gazing into crystal balls for what’s in store for capital markets next year, we’ll tell you what our own proprietary super-sophisticated forecasting model is saying. And if everyone’s bets for 2011 are as accurate as they were for this […]Continue
Every holiday season, consumers are subjected to a barrage of advertisements promising that everything from tricycles to luxury SUVs are—now, and for a limited time only—being offered at a discount that will never again be available. Private equity firms ought to look at the Federal Reserve’s second round of quantitative easing the same way. However, […]Continue
Rumors swept through trading floors last Friday that a “big deal” was launching of a kind rarely seen in this market. But by day’s end, those reports appeared unfounded. “We heard a loan was coming with no sponsor dividend,” one syndicator noted wistfully. “But we knew it was too weird to be true.”
Ok, maybe we were hearing things, but you can’t blame us for being distracted.
First, there was Ireland. Yes, the Emerald Isle (or the Land of Ire, as it’s now known in the eurozone) was back in the news as the poster child for sovereign budgetary woes. And in a flashback to this past spring, capital markets reacted by taking a brief powder. Seems investors aren’t quite as cozy as the rash of bank/bond issuance would indicate.Continue
The world is divided between those who think that the leveraged debt market is overheated, and those who know it is.
And for both camps, as surely as the arrival of pumpkin pie mix on supermarket end caps heralds turkey day, the appearance of ranks of dividend recaps on loan and high-yield shelves is a vivid sign of investor over-exuberance.
PE sponsors recapitalizing portfolio companies just to take out cash they had put into the original LBO were once features of a late-stage market. But the velocity of market cycles is such today that recaps occur at the beginning. It took six years after the dot com crash for leveraged wackiness to return. This round it’s taken six months.Continue
Fed officials who don’t see signs of inflation haven’t been watching loan prices.
As credit markets healed over the last two years, investors saw loans behave in a recovery as they were designed to. Default rates fell and recovery rates rose, proving the asset class could withstand a hundred year flood and come out barely moist.
Three months after Lehman failed loan prices in the secondary market reached a record low of 65 cents on the dollar. At the time, no one knew whether a bottom had been reached. Anxiety reigned and markets had no clear guidance on a path to recovery.Continue
As anyone trying to get a mortgage these days knows, leverage isn’t what it used to be.
The Great Deleveraging, begun in late 2007 as the credit crunch took hold, affected the entire corporate and consumer financial services community. Debt became a four-letter word, thanks to the unmasking of sub-prime mortgages as the true villain of the era.
Those no-income-no-equity loans took leverage to its theoretical extreme, coming to represent all that’s bad about structured credit and securitization. The carnage it brought to Main and Wall also made it impossible to appreciate all the benefits – liquidity, low cost, diversification of risk – of those off-balance sheet financings.Continue
Are middle market senior lenders really back?
Newspapers and industry publications say they are. You hear of certain private equity funds that claim they’ve been accessing senior debt. You may even get calls from some lending officers offering their wares.
Yet for all the hoopla that senior lending has returned, we believe that senior debt for middle market companies (defined as those with EBITDA less than $50.0 million) is still limited and only available to the best credits. Yes, there is an ample supply of asset based senior debt. Obtaining senior debt based upon collateral values is now easier than it has been in several years and some asset based lenders are even starting to offer overadvances, something unheard of even six months ago.Continue
As usual, we have a weeks’ worth of ratings actions on the debt of LBO-backed companies from ratings agencies Standard & Poor’s Ratings Services and Moody’s Investors Service.
Company: Gray Television
Sponsor: Highland Capital
Action: S&P raised its corporate credit rating on the company to ‘B’ from ‘CCC’ and removed the company from CreditWatch.
Highlight: “Our ‘B-‘ rating reflects Gray’s very high debt leverage, minimal EBITDA coverage of interest, and the mature and cyclical nature of TV advertising. Minimal positive factors are the strong market positions of Gray’s major network-affiliated TV stations and the good geographic diversification of its station portfolio.’
As usual, we have a week’s worth of ratings actions on the debt of LBO-backed companies from ratings agencies Moody’s Investors Service and Standard & Poor’s. This week the agencies focused on Sagittarius Restaurants, Securus Technologies, American Tire Distributors and Integra Telecom.
Company: Sagittarius Restaurants LLC
Sponsor: Charlesbank Capital Partners
Action: S&P said it lowered its corporate credit rating on the company to ‘CC’ from ‘CCC’.
Highlights: This action comes after the company disclosed that its subordinated lender agreed to reduce its claim substantially below face value. “We view this as tantamount to a default, given the current distressed financial condition of the company and since the investor is receiving less than the original promise of the original security,” said Standard & Poor’s credit analyst Charles Pinson-Rose.
As usual, we have a week’s worth of ratings actions on the debt of LBO-backed companies from ratings agencies Moody’s Investors Service and Standard & Poor’s. This week the ratings agencies only rated two companies: Aspect Software, backed by American Capital and Golden Gate Capital, and SS&C Technologies, backed by Carlyle Group.
Interesting sidenote: Yesterday a banker told me that, when considering what how much debt to put on a company in new LBOs, debt providers are telling the potential buyers of debt to due their own diligence on the company instead of buying based on the rating alone. Obviously since the financial collapse, the ratings agencies haven’t been seen as very reliable, but I’m wondering if they’re very relevant to buyout pros today or not. Do any of you not really care about ratings on your portfolio companies?
Company: Aspect Software Inc.
Sponsor: American Capital and Golden Gate Capital
Action: Moody’s upgraded the company’s corporate family rating to B2 from B3 pending closing of their proposed new debt facilities.
Highlight: “Maturities have also been pushed out to May 2014 from September 2010 for the revolver and to May 2016 from July 2011 for the new first lien term loan.”
As usual, we have a week’s worth of ratings actions on the debt of LBO-backed companies from ratings agencies Moody’s Investors Service and Standard & Poor’s. This week there were two upgrades and a downgrade.
Sponsor: Apollo Management and TPG
Action: S&P raised its corporate credit and issue-level ratings on the company and its operating subsidiary by one notch. S&P raised the corporate credit rating to ‘B-‘ from ‘CCC+’.
Highlight: “The ratings upgrade reflects our assessment that several actions taken by management over the past several quarters have positioned the company with sufficient capacity to weather the current downturn in the gaming sector,” said Standard & Poor’s credit analyst Ben Bubeck.