Morgan Stanley predicts a huge increase in the demand for private credit. In a new report titled, “The Coming Rebound in Credit Demands,” the investment bank refers to the credit crunch as a “financial purging and healing.”
Commentators haven’t shied away from the “binge” metaphor when discussing the 2007 boom-era, so I suppose there’s no harm in extending it to the credit crunch. With banks’ balance sheets de-levered and stimulus money in hand, the credit crunch is basically over, the report argues. And that means one thing: Time To Binge Again!
According to Morgan Stanley, credit demands, which declined through the fourth quarter of 2010, will bounce back any time now. The report doesn’t directly address leveraged loans, but we know the issue of credit availability is certainly near and dear to the hearts of all general partners (whether they admit it or not). We’re already seeing increased credit demands from private equity with lenders meandering back to the table and deal volume picking up slightly.
In the last month, a handful of large LBOs have been announced. Regardless of whether they secured boom-time amounts of leverage, their size alone means even a 1:1 debt to equity ratio requires more debt than lenders were willing to commit to six months ago. The return of the M&A rumor mill, Merger Monday, and several large auctions is further proof that the demand for leveraged loans is also rising.
Recent deals near or topping the $1 billion mark include the following:
CKE (THL Partners) – $928 million
Polycom (Apax Partners) – $3.1 billion (not yet official)
Almatis (Oaktree Partners) – $1 billion
Styron (Bain Capital) – $1.63 billion
IDC (A number of buyout firms are bidding) – approx. $1.5 billion
Sebia (Cinven) – 800 million euros