Wednesday, July 18, 2012

Lack of confidence holding back M&A and LBO growth

The leveraged finance new issuance continues to stay intact. We've had $167bn of HY bonds and $117bn of institutional leveraged loans issued so far this year. JPmorgan is forecasting lighter volume for the second half, but still decent amount of activity - see chart below.

Source: JPMorgan (click to enlarge)

The use of proceeds however shows caution, with the bulk of new issuance going toward refinancing (at ridiculously low rates) as well as capex. LBO and even M&A activity is still subdued. Transactions such as KKR's Walgreen's 45 percent acquisition of Alliance Boots for $6.7 billion are quite rare. Leveraged transactions require confidence in earnings growth/stability. And right now confidence is one ingredient that is missing, which holding back new deals.

Source: Morgan Stanley
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