A Linklaters report published today reveals the sheer size of the European LBO wall of debt to mature between 2012 and 2016 - approaching $550bn.
The report highlights the severe challenges in refinancing these LBO loans. Increased regulatory pressure, ongoing market volatility and a decreased ability for certain finance providers to participate, such as CLOs, all present significant obstacles.
For many companies there will be a way through. Increased access to the US and European high yield markets and the growth of alternative capital providers as a parallel source of finance offer some solutions. CLOs also still have a role to play, albeit a changing one.
But more restructurings are expected to come - and likely on more realistic terms, meaning greater debt write-downs for lenders.
The report aims to highlight key considerations for today’s market participant. It examines the industry and country specific areas of most concern, including:
- UK – $172bn to mature between 2012 and 2016; more than double the amount in both France ($86bn) and Germany ($83bn).
- Italy – $31bn, and Spain – $25bn, to mature between 2012 and 2016; substantial volumes relative to the size of their economies.
- In the first three quarters of 2011, $56bn of LBO refinancings were completed across Europe. With challenging market conditions came a dramatic drop in the fourth quarter when only $700m of LBO refinancings completed.
Certain sectors and jurisdictions are also under more significant pressures:
- Telecommunications ($67bn), retail ($47bn), healthcare ($40bn), chemicals ($37bn) and construction ($36bn) make up 40% of the total burden.
There are complexities and nuances to every aspect of both the wall of debt and the potential solutions to refinancing it.
Chris Howard, a partner in Linklaters’ R&I practice, said:
“Refinancing this wall of debt is subject to greater pressures than ever before. There will be more restructurings going forward which we anticipate will be more solutions focused and less sticking plaster.”
Yen Sum, a partner in Linklaters’ Banking practice, added:
“CLO fund managers will continue to have meaningful roles to play because of existing CLO exposures, further consolidation in the fund management sector and their adaptation to managing different types of funds geared to the types of opportunities that may be available.”
Alek Naidenov, a partner in Linklaters’ High Yield practice, added:
“While some potential European issuers are currently facing both uncertain access to and high pricing in the high yield market, 2012 has already seen numerous high yield upsizings and top-of-the-market features, like dividend, PIK and FRN deals, in Europe.”
Ian Bagshaw, a partner in Linklaters’ private equity practice, added:
“We are back to grassroots private equity activity. For the right sponsor with the right financial skillset and access to capital and experience, the wall of debt presents a once in a generation opportunity.”
To read the report in full, click here.
For further information, please contact: Rupert Winlaw on + 44 20 7456 3219 or Katie Taylor on (+44) 20 7456 2287