More Focus on the Allocation of Capital; There Is a Large Amount of Private Equity Debt Which Needs to Be Refinanced in the Coming Years. How Will This Be Achieved and Will It Necessitate a Shift towards Greater Operational Management of Companies? Martin Cordey, Director, Midlands at Lloyds TSB Corporate Markets Acquisition Finance, Reports
Byline: Martin Cordey
During the boom years forprivateequity, from 2005 to 2007, there was an abundance of cheap credit and a number ofhighly-leveragedtransactions.
Now, it is estimated that the private equitymarketwill have to refinance about pounds 225 billion of loans on deals completed during those years, according to Dealogic.
Committed partners of private equity, like Lloyds TSBCorporate Markets acquisition finance, who have supported sponsors through the cycle, will continue to invest andsupportbusinesses thatneed to refinance.
Asprivateequityhousesseekto refinancedebt,manywill attempt to persuade lenders to extend maturities on current loans. Lenders are keen to be flexible and support companies by extending the duration of loans or restructuring facilities to take into account current circumstances.
For the right companies debt is still available.However, the structure of transactions has changed. Previously, private equity houses would commit as little as 15 per cent equity. Since the economic downturn, the equityportionthat is required to do transactions is closer to 50 per cent. Private equity firms are now putting much more equity into their portfolio companies.
As well as changing how they commitdebt,banksarealsomore focused on where they allocate capital.
When approachedwith a potential opportunity, bankswon't just beassessingthe relativemeritsof the prospectivedeal fromacredit perspective, but are also likely to be looking closely at the strength of the relationship with the private equity house. Banks are more willing to support private equityhouses that they have had a good relationship with.
The track record of returns from transactions completed with a private equity firmis alsobecoming increasingly important. …