Companies may increase borrowing to pay shareholder dividends in a record year for junk bonds, Standard & Poor's said. . . .
"We are starting to see the proceeds of high-yield issues being
channeled to shareholders as dividends, something that is less- welcome from a credit perspective, reminiscent of the leveraged finance market back in 2007," analysts led by Taron Wade wrote . . . .
Companies owned by LBO firms in 2007 issued a record 6.1 billion euros of loans in the first half to pay dividends to shareholders, data compiled by Fitch Ratings show.
Private-equity firms "essentially decreased the risk of their portfolio equity investments, boosting their near-term equity returns at the expense of the credit quality of the companies themselves," according to S&P. ("Junk Bond Issuers Increase Dividend Deals, S&P Says," Bloomberg, April 20)
On collateralized loan obligations –
Citigroup is set to launch its second leveraged loan structured products transaction this year, this time for a large private equity client, as debt managers and bankers look to revitalise the markets which drove the buyout boom. . . .
If the transaction goes ahead soon, it will be only the second CLO to be
sold since the beginning of 2009. Last month Citigroup structured a $525m CLO managed by US fund manager Fraser Sullivan Investment Management. . . .
Leveraged finance bankers are hopeful the CLO market can take off again as it would provide greater availability of finance for leveraged loans, the engine of the private equity industry. The market for CLOs ground to a halt after the collapse of Lehman Brothers pushed credit markets into freefall. Even the most actively traded leveraged loans lost as much as a third of their face value in the depths of the crisis. ("Citigroup markets second CLO," Financial News, April 19)
On buyouts –
Private equity firms bear some resemblance to children at a fairground: they jump on a ride as dealmaking gathers pace, whizzing faster and faster, before jumping off as the cycle slows down. As the ride starts to gather pace again, buyout firms are back, with some eyeing the biggest rides. (Emphasis in the original)
Mega-deals – transactions over $10 bn that were favoured in the boom
years of 2006-200 8 but have been crimped by the lack of debt – are making a comeback. Last week, Blackstone Group and other investors
were in talks to acquire financial data processing company Fidelity National Information Services, according to The Wall Street Journal.
The acquisition of Fidelity, which has a market capitalisation approaching $10 bn and about $3 bn in debt, would be the largest leveraged buyout since the credit crisis struck. . . .
Bankers and buyout executives said the resurrection of large buyouts was being driven by a booming high-yield bond market. With low interest rates in Europe and the US, investors are more willing to take the risk of weaker credits because it allows them to secure yields unavailable in other forms of lending. ("Are dealmakers ready for another white-knuckle ride?" Financial News, May 10)
