New U.S. laws and a market hot for repricings has led to the highest levels of transAtlantic deals since 1998, according to data by Dealogic. TransAtlantic deal volume, which includes U.S. borrowers seeking financing in Europe and vice versa, totals about $18.5 billion since January. The total over the same period last year was $13.5 billion.
"U.S. markets are undergoing a heavy phase of refinancing, just as we are seeing in Europe, and that has led to a lot of repricing of deals and borrowers getting more attractive terms," said Paul Sennett, managing director, syndicated loans at Deutsche Bank in London. "That is driving volume up, that has been a huge drive in both North America and Europe. Will [these transactions] continue? Yes. Are we anticipating other deals? Yes."
According to Dealogic, U.S. investors buying into European deals accounted for about 66% of the total transAtlantic volume, or $12.3 billion, up from 38% in 2003. The $12.3 billion is the largest amount since 1999. Conversely, at 34%, U.S. loans to European borrowers are at the lowest level since 1999, totaling about $6.3 billion. Although the volume is lower, it is the largest dollar value of these types of loans since 2002.
Sennett said one of the largest reasons for this may be due to the The Repatriation Act, which allows U.S. corporations to repatriate earnings attributed to foreign business operations at a reduced tax rate. He explained that several U.S. companies have European subsidiaries and cited the recent deals by McDonalds Corp. and Philip Morris USA as examples. On the investment grade side, a number of such deals are being done and a lot of U.S. investors are participating in deals for the international entity of U.S. companies, he said.
Another reason volume is higher is because of the number of transAtlantic M&A deals taking place. "This has been in both directions, companies buying European entities, and it has also been a trend for [European] investors to buy in the U.S.," Sennett explained. A U.S. investor who recently set up shop in Europe suggested the increased activity could involve either recaps or LBO driven activity. Sennett cited Toys 'R Us as an example. "They have specific needs to raise money against the assets they have in Europe, which inevitably brings it over to this side of the pond," he said.
