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Is Leverage Really Coming Back?

After a year of all-equity deals and “creative capital structures,” word is that leverage is back! In a Big Way!

But from what I can see, leverage ratios on most middle market sponsor deals remains pretty static, in the 2x to 3x range, which seems very manageable when compared with the 10x leverage we saw piled on struggling boom-era deals.

Here is a selection of leverage ratios on some new issuances from this year:

In March, senior leverage for Transaction Network Services, a non-sponsored deal, was 2.5x. ABRY’s deal for Grande Communications used 2.8x senior leverage, Roskam Baking’s sale to Wind Point Partners used 2.5x senior leverage. The Boston Ventures-backed facility for Fairview Outdoor used 2.7x senior leverage.

A $115 million facility for Hearthside Food, acquired by Wind Point Partners, used 4x total leverage. CIT arranged that debt. Genstar Capital’s deal for UniVita Health brought the company’s 2.5x senior leverage with 4.5x total. Genstar Capital’s deal for UniVita Health brought the company’s total leverage to 4.5x. Wellspring Capital’s buyout of Vatterott Educational Centers gave the company 2.9x leverage. Court Square’s investment in Wyle Labs had 2.9x senior everage, bringing the company’s total to 4.3x.

Meanwhile, HIG Capital’s investment in Allion has 2.5x leverage, bringing the company’s total leverage to 3.8x. Quad-C’s deal for Cloverhill Bakery includes 2.75x leverage, with a total of 3.75x. American Securities’ deal for Gentek carries 2.4x leverage, Berkshire Partners’ deal for Grocery Outlet carries 2x leverage for a total of 3x for the company.

Overall, no deals breech the 3x leverage mark, and the mostly highly levered buyout has a total of 4.5x leverage.

Source: Churchill Financial’s On The Left newsletter.