Active private equity firms buoy buyout issuance

Issuance of leveraged loans and high yield bonds to fund buyouts surged to quarterly highs in 2021 as private equity sponsors raised their investment game

Buyouts are back in a big way. Private equity (PE) firms around the world hit the market with purpose in 2021 and that momentum could carry into 2022.

Issuance of high yield bonds and leveraged loans for buyout deals in the US and Western and Southern Europe, combined, totaled US$243.4 billion in the first nine months of 2021—more than double the US$120 billion posted in the regions during the same period in 2020. Such is the strength of the market this year that, with a quarter of 2021 still to go, issuance for buyouts already passed the US$182.7 billion secured during all of 2020.

In the US, buyout issuance of high yield bonds and leveraged loans came in at US$90.2 billion in Q3 2021—the highest quarterly total for such issuance in the region on Debtwire Par record, going back to 2015. There was already US$182.4 billion in buyout issuance in the US in the first nine months of the year, and the market is on track to top 2018, the previous record year (US$192.9 billion).

In Western and Southern Europe, issuance intended for buyouts reached US$61 billion by the end of Q3, up 24% on all of 2020 and already the second-highest total issuance for buyouts in the region since 2015.

In the Asia Pacific region (excl. Japan) (APAC), buyout issuance was similarly robust. Issuance of leveraged and non-leveraged loans and high yield bonds for buyouts totaled US$8.3 billion in Q3 2021, the highest quarter for buyout issuance in the region on Debtwire Par record.

On a year-on-year basis, issuance for buyouts climbed from US$8.7 billion in the first nine months of 2020 to US$16.3 billion during the same period this year. And, once again, as was the case in North America and Europe, issuance for buyouts in APAC at the end of Q3 2021 was already ahead of the full year total for 2020.

One notable part of this trend has been a rise in the use of high yield bonds to finance buyouts. Even though cov-lite term loan B debt has been abundant in 2021 and remains an attractive option for buyout dealmakers, an increasing number of financial sponsors have opted for high yield bonds to fund deals. CVC, for example, tapped bond markets as part of the financing package for the buyout of Business Integration Partners, the consulting company, from Apax Partners.

High yield bonds typically offer a fixed interest rate, giving PE investors clearer long-term visibility of debt financing costs against a backdrop of persistent inflation and the increasing likelihood of interest rate rises.

Buyout deal boom boosts issuance

This rise in buyout issuance has moved in tandem with increasing PE deal activity. By the end of Q3 2021, PE firms in the US, Western Europe and Asia had already invested more capital than they did in all of 2020.

PE deal value in the US reached US$796.5 billion in the first nine months of 2021, up 72% on the US$462.1 billion for the whole of 2020.

In Western Europe, PE deal value reached US$456.6 billion for the year to the end of Q3 2021, 36% up on the US$336.4 billion secured across the whole of 2020.

Similarly, in Asia, buyout deal value came in at US$243.1 billion with a quarter of the year still to go, a gain of 70% on the US$143.1 billion recorded for the whole of last year.

Lenders and investors who remain hungry for yield have been eager to fund the growing volume of buyouts as repricing and refinancing deals—which accounted for the lion’s share of leveraged loan and high bond activity in the first six months of the year—start to slow down.

In the US, refinancing and repricing activity peaked at US$400.3 billion in Q1 2021 but slid to US$260.1 billion in Q2 2021 and US$184.4 billion in Q3.

It was the same story in Western and Southern Europe, moving from US$86.1 billion in Q1—the second-highest quarterly issuance for refinancing and repricing on Debtwire Par record—to US$49.1 billion by the end of Q3. And in APAC, refinancing and repricing issuance dropped 20% between Q2 and Q3 2021, from US$85.4 billion to US$68.3 billion.

As this deal flow cooled, strong lender demand for buyouts enabled sponsors to finance big ticket transactions on attractive terms. US-based medical equipment manufacturer and distributor Medline Industries, for example, was able to lock in US$14.8 billion of capital to fund the company’s US$34 billion buyout by a PE consortium that included Blackstone, Carlyle and Hellman & Friedman. The deal is the largest LBO transaction in more than ten years and the largest buyout financing to price this year.

The financing for this deal comprised a US$7.8 billion-equivalent euro-dollar TLB maturing in 2028 and a US$7 billion dual-tranche note, attracting considerable demand, according to Debtwire.

In another example of the depth of lender appetite for buyout deals, specialty chemicals company Solenis secured US$3.8 billion from lenders to fund its US$5.25 billion buyout by Platinum Equity from Clayton, Dubilier & Rice.

The deal, which will see Solenis merge with Platinum portfolio company Sigura Water, was financed with a US$1.7 billion-equivalent euro-dollar TLB and a US$2.1 billion-equivalent multi-currency note package. According to Debtwire, the dollar portion of the TLB financing was upsized during syndication and priced tighter than initially discussed.

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