Amid M&A Frenzy, LBO Leveraged Loans Surge to Record Size

europe LBO loan

Propelled by the ongoing M&A binge and mountains of cash for private equity shops to spend, leveraged loans backing LBOs in Europe have shot to record size in 2018.

These credits, which traditionally have been arranged by large banks, then syndicated to institutional investors such as collateralized loan obligations vehicles (CLOs), pension funds, and other institutional investors, have grown to an average of €689 million so far this year, according to LCD. That’s a big leap from €447 million in 2017.

Why the increase?

These mega-buyout financings are being driven by a combination of factors, including readily available and cheap debt (despite a recent widening of spreads charged to borrowers), a record amount of dry powder raised by private equity firms, strong corporate earnings, and big assets coming up for sale — especially through divestments of non-core businesses from large corporates, as well as break-ups as a result of increased shareholder activism, PE firms say.

Private equity players add that large buyouts are particularly attractive in the current market, which has become tougher due to fiercer competition, including more sovereign wealth funds and pension funds coming in, and rising valuations. Indeed, on a rolling three-month basis, average purchase-price multiples reached 11.3x in March this year, according to LCD. That’s the most since the financial crisis (though it has dipped since March).

This story is abstracted from an LCD News story by Isabell Witt.

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