Survey: Debt availability on the comeback

Europe’s acquisition finance providers are expecting more active debt markets in 2011, a trend likely to be welcomed by mid-market players eager to refinance portfolio companies.

Some of Europe’s biggest debt providers have expressed optimism for the debt markets in 2011. Roughly 90 percent of respondents to DLA Piper’s European Acquisition Finance Debt Survey said they expect a further recovery of debt market activity in the year ahead.

The international law firm surveyed approximately 30 financial institutions active in Europe’s acquisition finance market, including prominent private equity lenders such as BNP Paribas, Barclays Bank and GE Capital.

A consensus was also reached that most of the activity will be directed towards the mid-market, with 79 percent predicting that the bulk of activity will be directed at buyouts below £200 million.

During 2010 the average equity contribution to buyouts in the UK, Europe’s biggest private equity market, was 68.1 percent of deal value: the highest proportion on record, according to the Centre for Management Buy-out Research, which is sponsored by Barclays Private Equity and Ernst & Young and published by PEI.

Respondents to DLA Piper’s survey expected this to change: 60 percent expected equity to make up at most 50 percent of capital structures.

The survey bodes well for Europe’s mid-market financial sponsors looking for liquidity in the banking market to refinance existing portfolio companies. For many of these firms, the rejuvenated high-yield bond market is too expensive an option considering their relatively small size, according to Jonathan Guise co-founder of London-based debt advisory boutique Marlborough Partners, in a recent interview with PEI.

However there’s a risk that thawing banking markets will be unable to fully absorb the expected leveraged refinancing demand peak in 2013-14, said Guise.

Alexander Griffith, a partner at law DLA Piper, said there would be winners and losers as the refinancing “wall” arrives.

“Whilst there will be a number of high quality borrowers looking for and obtaining refinance facilities without difficulty, many others will struggle, especially if banks are pursuing new buy-out mandates at the same time”.