Apparently, the party’s not over
Even though the chill gripping global credit markets has caused 46 leveraged financing deals since June 22 to be pulled ($60 billion), the party is apparently not over, according to experts. WSJ:
Banks have been left holding debt for about $400 billion in uncompleted management buyouts and leveraged buyouts around the world that they had planned to sell on to investors, according to data compiled by Baring Asset Management, which also totted up the total number of pulled deals…banks last year sold some $4 trillion of loans and more than $837 billion of bonds from high-grade and speculative-grade companies globally, according to data provider Dealogic…
Problems with U.S. subprime mortgages have pushed up yields on corporate debt in recent weeks. But bankers, ever the optimists, say the funding drought is unlikely to halt the five-year boom in mergers and acquisitions. They note that the market has sprung back from previous crises after the October 1987 market crash and Russian financial crisis in 1998.
“The cycle began in 2003 and, despite the recent credit-market problems, could have up to three years left,” said Liam Beere, head of U.K. M&A at UBS AG. “Corporate earnings, cash flows and economic fundamentals remain good, and the last two cycles lasted eight to 10 years.”
While more-difficult credit markets may affect the pace of deals and the average debt-to-equity ratio that lenders will accept, it won’t completely put the kibosh on deal making, bankers say. But buyout firms must be willing to pay more to raise cash and accept lower leverage to stay in the game.
It appears that the bankers could be dancing for 2-3 more years, if historical trends bear out.
August 5th, 2007 at 12:24 pm
Somehow I remember that not too long ago that the palladines of mortgage financing, the mortgage companies and the investors in MBS’s, were echoing the same old refrain that the mortage market’s downtrend would be short and contained. Since these were the same people that rely on these various housing markets for their sustenance, one could see that their polyannah confirmations were not reliable. with the leveraged buyout, we see parties that have the same vested interest in the sustainability of the environment voicing optimism. But as one can clearly see, we are in the beginning throes of a liquidity crunch that will be severe and protracted. the same scenario prevailed in the late 20’s - the bubble, and then the bust. What will determine severity will be the level of governmental interfernce that is used to address the necessary correction in the credit markets. Any regulatory measure that prolongs the pain extends the disease.