Debt in Focus. Hamish Grant

Transcription

1 Debt in Focus is the Mid-Market back to where it should be? Hamish Grant

2 Session Outline > Where is the Mid-Market for debt today? > Banking in a European context > The wall of refinancing > Conclusions > Q&A 2

3 Where is the Mid-Market for debt today?

4 Did the market overheat before the summer? European market leverage levels and margins Average equity contribution in European LBOs 7.0x 5.9x 500bps 50% 48% 6.0x 5.0x 4.4x 400bps 40% 34% 4.0x 300bps 30% 3.0x 200bps 20% 2.0x 1.0x 100bps 10% 0.0x 0bps 0% 2007 YTD YTD 2011 Other debt/ebitda First Lien/EBITDA TLB Margin Source: S&P LCD Source: S&P LCD Leverage levels are 1.5x lower in YTD 2011 compared to 2007, with significantly higher average margins and equity contributions 4

5 Overall, 2011 has been an average year for debt issuance... European senior leverage loan volumes Senior loan volume Deal count 180bn bn bn 120bn bn bn bn bn 20bn Annualised Senior loan volume Deal Count Source: S&P LCD 5

6 ...with debt multiples and gearing in line with long-term trends Annual pro forma debt/ebitda Average equity contributions in LBOs 7.0x 6.0x 5.0x 4.0x 3.0x 4.3x 4.0x 4.1x 4.1x 4.5x 5.2x 5.4x Average = 4.6x (excluding 2007 this reduces to 4.5x) 5.9x 5.1x 4.2x 4.4x 4.1x 60% 50% 40% 30% 37% 38% 39% 37% 36% 34% 34% 34% 45% 53% 51% 48% 2.0x 20% 1.0x 10% 0.0x YTD % YTD 2011 Other Debt/EBITDA Second Lien/EBITDA First Lien/EBITDA Source: S&P LCD Source: S&P LCD 6

7 What happened in the summer? Primary leverage market activity YTD 2011 January February March April May June July August September Source: S&P LCD 7 No. of loan deals No. of HYB deals

8 Macroeconomic uncertainty is impacting market pricing 110 Secondary market pricing 14 Primary market pricing 2.5% % % % % % 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Deals sold below par % Discount Source: S&P LCD flow names Source: S&P LCD 8

9 Banks are facing increased funding costs 600bps Bank 5-yr CDS spreads 500bps 400bps 300bps 200bps 100bps 0bps Source: Bloomberg BNP Unicredit Commerzbank Lloyds 9 Banks are facing very high funding costs and an interbank lending freeze which makes new lending challenging

10 Has the market shut? 120bn 100bn 80bn 92 deals Underwritten loan deals in the market 60bn 40bn 20bn - 19 deals Saturday, September 01, 2007 Thursday, September 01, 2011 Deals to be launched Deals in syndication Source: S&P LCD, Loanconnector, Bridgepoint analysis We expect the current market overhang to clear in the next 2-3 months 10

11 Margins are rising in response to the crisis 550bps Senior tranche B margins 500bps 450bps 400bps 350bps 300bps 250bps 200bps Source: S&P LCD, Bloomberg, Bridgepoint analysis Margins have reversed their recent falls in reaction to the economic crisis 11

12 What does this mean for deal economics? Spread per unit of leverage Source: S&P LCD, Bloomberg, Bridgepoint analysis 12

13 Banking in a European context

14 Market players a snapshot based on Bridgepoint s portfolio Local or regional players UK & Ireland AIB Co-op Bank Investec RBS Rothschild Santander Benelux NIBC Rabobank France BECM BPCE BRED CIC Crédit Coopératif Natixis Rives de Paris Iberia BBVA Banesto BES Bankinter Caixanova Caja españa Caja Madrid 14 Caja Rioja Caixanova Ibercaja La Caixa Sabadell Santander Unicaja Nordic Elake-Fennia Etera Illmarinen Nykredit Bank Nordea Bank Pohjola Bank SEB Varma Italy Banca CR Firenze Banca Monte dei Paschi Intesa Sanpaolo UBI Banca DACH BAWAG Bayerische Landesbank BHF Erste Bank DZ Bank HSH Nordbank IKB InvestKredit Bank KfW LBBW Raiffeisen CEE BRE Bank Kredyt Bank BZ WBK Eastern Med Finansbank Garanti Bank Vakifbank Other funds Pan-European commercial banks Barclays Bank of Ireland BNP Paribas Commerzbank Crédit Agricole GE Capital Investment banks BAML Citigroup Credit Suisse Deutsche Bank Major funds Alcentra Ares Babson ICG 55 other funds in our portfolio syndicates HSBC ING Lloyds Mizuho Société Générale Unicredit Goldman Sachs JP Morgan Morgan Stanley Mezzvest Park Square Prudential

15 Financing options Key debt structures and processes Senior 2nd Lien Senior secured Unsecured Super Senior Loans Unitranche Private Placement Bonds FRNs PIK Loan Mezzanine PIK Notes Bridge Sole Underwrite Rollover Processes Best Efforts Club Underwrite Bank Club 15

16 The wall of refinancing

17 European CLO market maturity profile > , 69bn of European CLOs by par amount will have ended their investment period bn of leveraged loans held by CLOs will require financing by Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Maturity profile of assets held within CLOs Source: S&P 17 Principal balance of CLO portfolios ending their reinvestment period

18 The wall is being addressed 140bn 120bn 120.6bn 116.3bn 100bn 99.1bn bn 60bn 88bn 68.2bn bn 20bn 33bn 0bn Dec-08 Dec-09 Dec-10 Sep-11 Source: S&P LCD 58bn 10bn

19 Bridgepoint s amortisation profile 19

20 Bridgepoint s refinancing challenge I 20

21 Bridgepoint s refinancing challenge II 21

22 Bridgepoint s refinancing challenge III 22

23 Bridgepoint s refinancing challenge IV 23

24 Conclusions

25 Conclusions > 2011 has not been a repeat of 2007, with leverage in line with the historical average and margins remaining at the high levels seen since 2009 > Recent macroeconomic turmoil has lowered secondary loan pricing which has directly impacted the primary market through higher expected margins and fees > The high yield market is currently shut and is unlikely to re-open until investors see sufficient macroeconomic stability > However, the European loan market remains open. Loan margins are increasing, with leverage and terms remaining conservative > The wall of refinancing is an important but often misunderstood issue 25

26 Q&A