MARLBOROUGH PARTNERS’ Q4 2012 REPORT SHOWS IMPROVED LIQUIDITY AND RISE IN LEVERAGED LOANS
London, Monday January 28 2013
Marlborough Partners, the independent leveraged debt advisory firm, today published its report on the leverage finance market for private equity deals and portfolio company refinancings in Q4 2012.
The quarterly snapshot, analysing data from a number of sources, shows issuance of €2.6bn of leveraged senior loans in the UK, a 110% increase on Q3 which itself saw a rise on Q2. Pricing tightened to Euribor+488 basis points, similar to the level at the end of 2011.
Total volumes for UK leveraged senior loans in 2012 ended at €8.0bn, 11% down on 2011. In Europe however, issuance was some 30% down on 2011, highlighting the UK’s more robust private equity market.
The high yield market continued to be strong in Q4, with primary bond yields moving towards record lows. Marlborough expects this trend to continue through early 2013. Private Equity Funds continue to see the current liquidity as an opportunity to improve existing capital structures of their portfolio companies, extend loan maturities and return dividends to their investors.
Increased liquidity will also enable new buyouts and more opportunistic lending in the form of recapitalisations and refinancings in the first half of 2013, though Marlborough cautions that the second half of the year may be less positive, as reinvestment periods for 60% of CLOs come to an end.
Commenting on the quarterly report, Marlborough partner, Romain Cattet, says: “As the CLO situation develops, we anticipate the market will witness more cautious underwriting and potentially higher pricing in the latter part of 2013 as liquidity tightens. ”
The iTraxx Europe Cross-Over index (a key indicator of pricing expectations for sub-investment grade risk), followed a downward trend after a volatile Q3. By mid-January, the index was at 420 basis points, a level not seen since July 2011.
One trend that emerged during 2012 was the relevance of the retail bond market for private companies. Since its inception in 2010, the Order Book for Retail Bond (ORB) has seen 24 issues launched for a total of £2.5bn. 2012 saw an acceleration of this trend with 15 issues completed. Historically limited to PLCs and companies with a large asset base, retail bonds provide access to a private investor base through a stock exchange listed and therefore liquid product, significant covenant headroom and a lighter documentation process compared with a high yield issue.
Cattet added” “While the retail bond market is not yet a primary source for mid-market LBOs if it develops, as we believe it will, refinancing processes will need to take it into account as a credible, alternative to bank debt.”
Marlborough's most recent transactions include advising Bregal on the leveraged recapitalisation of QA, advising Charterhouse on the financing for add-on facilities for Tunstall, and advising Advent International on staple financing for Xafinity Consulting.