As tough as 2015 has been for leveraged loan activity overall – new-issue volume in the U.S. is down 32% year-over-year, to $205 billion through June 12 – private equity has suffered a disproportionate drop, fostered by a combination of regulatory pressure and sky-high equity prices.
All told, private equity-backed issuers’ share of leveraged loan volume has receded to a six-year low of 43%, or $87.7 billion of $204.6 billion, from 54% last year. And this doesn’t include the looming set of large corporate deals, featuring Charter Communications and Avago Technologies. Factoring in those transactions, PE’s share drops to 39%.
The challenging regulatory and market environment notwithstanding, LBO loans as a share of overall leveraged loan volume has inched to a post-credit-crunch high of 18% in the year to date, from 16% in 2014. Still, LBO activity remains far short of its boom-year highs.
Few participants expect the LBO engine to shift into a higher gear until purchase multiples fall to more IRR-friendly levels (assuming at that point economic growth persists). Until then, strategic buyers will likely dominate the M&A game. Certainly, that’s been the case in 2015, with corporates taking 53% of overall M&A-related leveraged loan volume, also a seven-year high, or $58 billion of $110 billion. Pro forma for the calendar, that share jumps to an all-time high of 61%.
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