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December 11, 2009
Bank Street is a boutique investment banking firm providing a comprehensive array of corporate finance and advisory services to middle-market growth companies and financial sponsors, including merger and acquisition advisory, private placements of debt, equity and mezzanine capital, liability management and restructuring.
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Debt Capital Markets Commentary |
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The momentum in the debt capital markets continues with the high yield market reaching YTD new issuance volume of nearly $142 billion and the leveraged loan market attaining YTD new issuance volume of $69 billion as of 12/3/09. Approximately $36 billion of new leveraged loans have been launched since September 2009 with another $8 billion currently in the pipeline. Recent leveraged loan transactions include a $150 million financing for Cyrus One and a number of transactions in the pipeline including a $2 billion LBO loan for IMS Health, a $250 million LBO loan for ATI, a $75 million acquisition loan for Princeton Review, and a $75 million acquisition loan for Airborne Systems.
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On the buyside, CLOs, which have traditionally been strong buyers of leveraged loans, further resumed their investment activity in Q4 2009. With an estimated $71 billion of high yield bond proceeds going towards repayment of leveraged loans so far this year, CLOs in particular are looking to reinvest loan repayments into primary loans in order to comply with collateral diversity and weighted-average-rating requirements.
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The leveraged loan pricing index continued to trade within a narrow range with the average bid on performing BB-/Ba3 loans at 95.00 as of 12/7/09. The average discounted spread for the BB-/Ba3 index was L + 3.81% as of 12/7/09, a 65% decline from L+10.99% at the end of 2008. 30-day LIBOR is currently 0.23% versus 1.44% a year ago.
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Other evidence of the recent resurgence in the leveraged finance market was news that Citadel Securities is making its foray into the debt underwriting business and is teaming with JP Morgan on an upcoming $500 million senior note offering for Advanced Micro Devices and with Deutsche Bank and Credit Suisse Group on a senior secured credit facility of up to $700 million for Targa Resources, Inc.
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| Leveraged Loans |
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| High Yield |
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Equity Capital Markets Commentary |
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Recent economic data suggesting improvement in the job market and an improved U.S. trade deficit indicate that the recovery might be well underway. Major indices continued to rise steadily with the Dow, S&P500 and Nasdaq rising 6.4%, 3.7% and 2.9%, respectively since the end of the third quarter.
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To-date, fourth quarter follow-on volume has been tracking behind the third quarter in gross proceeds, with 179 deals accounting for $20.6 billion. The second quarter boasted 407 offerings aggregating $49.8 billion. Sectors with significant issuance were Financials, Energy and Power, Healthcare and Industrials.
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Last month 31 companies filed their intention to go public will the SEC setting a high watermark for the post-financial crisis period. As a result there are now 22 venture backed IPOs in registration, sparking a debate as to whether the good times are back. In a decent year there are between 80 and 100 VC backed IPOs. It seems to us that guarded optimism is the appropriate response.
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As mentioned in our last issue, dividend recaps are finding their way back into the PE lexicon. Carlyle Group and Hellman & Friedman are attempting to take advantage of the recent run up in the high yield and leveraged loan markets to recap portfolio companies, Goodman Global, an air-conditioning systems manufacturer, owned by Carlyle is seeking $550 mm while Booz Allen Hamilton, a consulting company, seeks $115 mm for its owners, H&F.
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PE firms’ interest in the emerging market is not new; however, Brazil seems to be receiving significant attention from Carlyle whose co-founder, David Rubinstein, announced that the firm would be closing 2-3 deals there soon. Brazil is definitely on a roll, having recently been the subject of a cover story in the Economist Magazine. Brazil’s economy, the region’s largest has performed very well aided by pro-market reforms of its last two presidents. For the time being investing in Brazil appears to be a smart money bet.
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| Telecom, Media & Technology |
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| Healthcare |
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| Aerospace & Defense |
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