Market Waits, Wonders If Active M&A Market Will Help Loan Pipeline

  • 13 Jul 2003
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Loan market players are hoping the increase in merger and acquisition activity over past weeks will continue to intensify and stir up a significant amount of much needed new bank credits. But while some sense the M&A pot is brewing up all sorts of deals, others wonder if many of the big transactions will deliver significant loan supply. Some of the deals are hostile, so they have "less than a 50/50 chance of being completed," one investor noted.

To be sure, there is more buzz than there has been in a long time. "People in the M&A business are a lot busier than they have been," said Dan Bricken, a director at Wachovia Securities in M&A, specializing in the information technology and business services sectors. He explained that even beyond the spotlight deals, such as the pending merger of Oracle Corp. and PeopleSoft, or that of Zimmer Holdings and Centerpulse, there has been a notable pickup in interest for M&A.

Auto part product company ArvinMeritor will seek to use term debt and revolvers for the $2.2 billion bid for Dana Corp, an ArvinMeritor spokeswoman confirmed. Yellow Corp.'s $1.1 billion acquisition of Roadway Corp. is expected to wrap up in the back half of 2003. Officials familiar with the situation expect a bank and bond debt package totaling about $500 million to back the transaction. Private equity firms are also getting fidgety in their seats, looking for more M&A opportunities sooner rather than later. Private equity groups are looking to unload companies after holding onto them longer than anticipated, Bricken said. Deals like DLJ Merchant Banking Partners III LP's $1.2 billion acquisition of Jostens from sponsors led by Investcorp or TransDigm Holding Company's $ 1.17 billion leveraged buyout by Warburg Pincus are both shopping bank credits to back the transactions. A $650 million bank debt package is being shopped to back the Jostens deal, while TransDigm has tapped the loan market with a $440 million bank debt package.

Roger Arner, managing director in rating assessment service at Moody's Investors Service, said the pipeline is building. "I think the perspective we are hearing from intermediaries is that they feel there is likely to be more deal flow coming in the third quarter," he said, adding that this could trickle down to entities tapping the currently attractive rates in the bank debt market. "The debt markets are more favorable [and] people are beginning to put their thoughts [of M&A activity] into actions," Bricken added.

But many market players have yet to see the new money. Deutsche Bank is advising Yellow on the acquisition, but it could not be confirmed late last week if the bank would be leading a related bank deal. A Yellow spokeswoman did not comment and Deutsche Bank bankers did not return calls. Additionally, M&A activity, such as the hostile bids by Oracle, Zimmer and ArvinMeritor, may never actually happen or may never even reach the leveraged debt market, an investor commented. However, Bricken pointed out that, "hostile deals are more attractive from a lender's perspective." He added that deals now are more frequently being financed through cash on the balance sheet or debt as opposed to the primarily stock deals of the late 90s.

  • 13 Jul 2003

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

Bookrunners of Global Structured Finance

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1 Citi 1,712.34 6 12.44%
2 SG Corporate & Investment Banking 1,292.64 1 9.39%
2 Rabobank 1,292.64 1 9.39%
4 Mizuho 1,215.54 3 8.83%
5 Wells Fargo Securities 1,012.71 4 7.36%