Buyout financing pipeline thins for Q2

By Colette Campbell

LONDON (Reuters) - Record first-quarter leveraged loan volume of $58.6 billion points to a busy year in the loan market, but bankers anticipate a second-quarter drop due to a thinner deal pipeline.

The prospect of fewer deals is alarming banks and investors, as first-quarter leveraged loans met with unprecedented demand from investors, as seen on the recent buyout of Nordic telecoms company TDC (TDC.CO: Quote, Profile, Research, Stock Buzz), which raised more than 15 billion euros in commitments.

The thinning pipeline is due in part to the failure of a number of large first-quarter buyouts, such as British broadcaster ITV (ITV.L: Quote, Profile, Research, Stock Buzz), the sale of British aviation services group BBA's (BBA.L: Quote, Profile, Research, Stock Buzz) Fibreweb unit and British newspaper publisher Northcliffe, bankers said.

This is due to resistance by shareholders of public companies, the resurgence of trade buyers and sellers' decisions not to proceed after bids failed to meet expectations.

"Before we looked mainly at competitive concerns now we need to be aware of where other potential pushback can come from" Graham Rainbow, a director at Barclays global loan team, told the Reuters Hedge Funds and Private Equity Summit on Wednesday. "Shareholder issues, the impact of government concerns, and also what nationalistic interests there are, are all concerns."

A healthy business environment and strong EBITDA multiples have put companies in a more comfortable position and reduced their inclination to sell.

"Companies just simply don't need to sell," commented Adrian Beecroft, Chief Investment Officer at Apax Worldwide.

The competition for buyers looking for assets is also heating up. While intense competition is nothing new, the potential pool of buyers is expanding as hedge funds are beginning to stalk assets, and trade buyers are also boosting corporate-to-corporate acquisitions.  Continued...