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Leveraged Lending So Cold S&P Can’t Even Analyze It

If you’re a loan originator, you probably spent the first quarter of this year bored to tears or worried about your job. Quarterly league tables from Standard & Poor’s Leveraged Commentary & Data only confirmed what our numerous reports on lender layoffs foreshadowed: New issuances are down, down down.

In fact, in the latest issue of Buyouts, Ari Nathanson reported that new debt issuance was so low S&P couldn’t even release quarterly averages on purchase price multiples and LBO leverage. Let me repeat: There were not enough deals in the first quarter to even average deal or leverage multiples.

From Buyouts:

A recent league table tracking lead arrangers of LBO debt facilities up to $100 million captures the story with its remarkable brevity. The table, which ranks the 20 most active participants, was only six lenders deep for Q1 2009 due to the frozen financing markets.

The top lead arrangers for LBO financings of less than $100 million were tied with a whopping total of two deals each. US Bankcorp and Golub Capital arranged a respective $78 million and $61 million in debt during Q1.

So what are lenders doing? Besides laying off their origination teams, they were working out crisis situations their existing portfolio companies. In fact, workout bankers haven’t been in this hot of a commodity since the early 90s. As I wrote for peHUB last June, until then, workout bankers were on vacation for the past five or six years.

“Entire lending institutions got rid of their workout groups,” said Lorie Beers, managing director with the Special Situations Advisory Group at KPMG Corporate Finance. Many of the field’s experienced professionals moved on, winding up at buyout shops, investment banking departments, or loan origination.

Nowadays, bankers with experience in distressed companies are in greater demand than ever. As one lender said, fund managers without experience in distressed companies miss red flags. He said, “Companies in decline often see the wheels fall off in a non-linear fashion, and without the right skill set, a lender won’t know its raining till its pouring.”

Read Ari Nathanson’s full story at in the latest issue of Buyouts. (Subscription required)

Earlier: Where have all the workout bankers gone?, Lender Layoffs: Fifth Street Capital, The Lender Layoffs Begin, Heads Keep Rolling at Mid-Market Lenders