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Private equity: Sponsors are busy, but public-to-private deals remains scarce as stocks rise

public to private deals

In recent years the time-honored LBO process – a private equity shop finds a public company, buys it using debt, then cashes out later - has become a victim of its own success, as PE firms have helped encourage corporate America to slim expense lines, driving profit margins to all-time highs.

At the same time, record stock prices have driven purchase-price multiples up even as regulatory pressure has put a cap on leverage. These factors have hurt the ability of PE firms to find suitable LBO candidates despite their full war chests, which Prequin says totaled roughly $397 billion at the end of 2013.

Therefore, participants expect PE firms to continue to work their portfolio companies via tack-on deals, sponsor-to-sponsor trades, and recaps, when the window for such deals is open. Meanwhile, straight public-to-private deals remain most rare. – Steve Miller

This analysis is part of a longer look at new issuance in the leveraged loan space. It is available to LCD News subscribers here.

For leveraged finance news and market talk follow Steve Miller on Twitter.

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LSTA files suit against Fed, SEC over CLO risk retention

The Loan Syndications and Trading Association (LSTA) has filed a lawsuit against the Federal Reserve and the Securities Exchange Commission over the final risk-retention-rule release last month.

The petition for review, filed Nov. 10, alleges the final rule is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

The petition for review represents the first step in legal proceedings that the LSTA has taken against regulators in an effort to provide the CLO market with relief from the final risk-retention rule, which will require CLO managers to retain 5% of the deal. It is expected to take effect in about two years.

The LSTA said it filed the suit “reluctantly” and as a last resort. “The LSTA believes the regulatory agencies’ one-size-fits-all solution to risk retention with respect to collateralized loan obligations (CLOs) disproportionately punishes an industry that was not involved in the financial crisis, suffered practically no losses and currently provides critical financing to over 1,000 non-investment-grade companies,” LSTA executive director Bram Smith said in a statement.

“We have sought a reasonable solution for years and worked tirelessly to provide the agencies with workable and practical options because we believe the negative impact of the risk-retention rule on the CLO market and broader economy will be significant,” Smith added. “None of our material proposals were implemented into the rule.” – Kerry Kantin

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CLO roundup: Pricing schedule stays busy as European spreads widen

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Last week was an active one for the U.S. as market players looked to price CLO transactions ahead of the shortened Thanksgiving week. In Europe, meanwhile, November saw its first two pricings last week ahead of what could be a busy push into year-end. The big question, however, is whether widening liability spreads in Europe will lead some issuers to put transactions on hold until 2015.

Global issuance stands at $130.77 billion, according to LCD.

LCD subscribers can click here for full story, analysis, and the following charts:

  • Deal pipeline
  • US arbitrage CLO issuance and institutional loan volume
  • European arbitrage CLO issuance and institutional loan volume

– Sarah Husband

Follow Sarah on Twitter for the latest CLO market news and insight.