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Premiums may not be at risk of increasing yet but caution should remain the watchword
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Good news has been a rare commodity for the European leveraged finance market in the last year, but the £1.14bn loan supporting the buyout of Biffa, the UK waste management group, is set to close oversubscribed this week. This successful syndication has been welcomed as a sign that the market is finally returning to normal. But the optimists should be wary: investor demand is still fragile and weaker deals are likely to have a rough ride.
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When Pernod Ricard set out in March to raise Eu12bn to finance its takeover of Vin & Sprit, the loan market gasped at the pricing it demanded. Now Pernod has bowed to the inevitable and coughed up. Paradoxically, this is encouraging for the loan market, showing that issuers are realising they need to satisfy lenders to get deals done.
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With Moody’s announcement of a new system of scores for structured finance deals last week, one dangerous idea has been killed. This was that rating agencies should give securitisations a special set of ratings, distinct from the ordinary triple-A to C scale. That would have defeated the purpose of ratings and it is a triumph for common sense that regulators’ bullying calls to segregate ABS have not prevailed. However, the rating agencies still have a very long way to go to win back the market’s trust.
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Vikram Pandit’s plan to put a spring back into Citigroup’s step contains a lot of good sense. Shorn of up to $500bn of non-core assets, Citi will refocus on high growth businesses and emerging markets and develop the world’s first “global universal bank”. But coming up with the strategy was the easy part. Delivering on his promises will be far tougher for Pandit.
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The strategic reasons for Westpac to buy St George Bank have not changed for years. What has changed is that St George, heavily reliant on wholesale funding, has been weakened by the credit crunch, especially its reliance on securitisation.
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Monoline insurer MBIA, nearly drowned by losses on subprime mortgage-related securitisations, appears to have hoisted itself out of the river and be crawling, still covered in mire, up on to the bank. Could it slip back? Look closely at its numbers and you may not be filled with confidence.