Investors in bank loans are looking forward to a wave of leveraged buyouts that will bring paper to a market where demand has been outpacing supply for well over a year. Glenn Stewart, managing director and head of the syndicate desk at Banc of America Securities, said the deals announced in the past few weeks are a continuation of a steady stream of sponsor activity. "I don't see it as a real shift in the market. It's just a continuation of a real steady stream in the market and I think it is going to continue," Stewart said. Still, the stream has not been strong enough for some investors and many are hoping the latest rush will lead to a flood.
One thing investors are looking to as a harbinger of good things to come is the fact that the deals being announced are not sponsor-to-sponsor deals. "You were seeing a lot of sponsor-to-sponsor earlier in the year and now you're starting to see some new stuff," Stewart said. He noted that many of the strategic buyers were busy worrying about their own houses over the last year, but they are now starting to think about acquisitions. Strategic buyers have a long gestation period, he said, but he believes their deals will start coming toward the end of this year, early next year.
One loan investor said the market seems more bullish. He noted that a lot of smaller deals have hit the market, but what he really needs is volume. His wishes may be met. Last week Thomas H. Lee Co. announced its $2.25 billion acquisition of REFCO Group. The senior debt portion of the financing will be around $800 million and led by Credit Suisse First Boston, B of A and Deutsche Bank. Also in the works is a $775 million credit backing the purchase of RAG American Coal Holdings by First Reserve Corp., The Blackstone Group and American Metals & Coal International. Citibank, CSFB and UBS are leading the RAG Coal deal
Castle Harlan has been one of the busiest players, employing the proceeds of its latest $1.163 billion fund that closed last August. The private-equity shop is buying Ames True Temper for $380 million, with B of A and Wachovia Securities leading the senior debt, a Castle Harlan spokesman said. Last month, Castle Harlan announced it was purchasing Horizon Lines from The Carlyle Group (see story, page 3) and Caribbean Restaurants from Oak Hill Capital Partners (see Primary Roundup, page 4).
J.P. Morgan and Lehman Brothers, meanwhile, launched syndication last week for a $300 million credit backing Coinstar's $235 million acquisition of American Coin Merchandising. Coinstar is acquiring American Coin from Wellspring Capital Management. BMO Nesbitt Burns is also leading a $400 million fully underwritten credit facility backing Petro-Canada's $534 million acquisition of Primary Energy Corp. A Petro-Canada spokeswoman said BMO is a key relationship bank of the company.
While the other credits will keep investors busy through the summer, there are also deals that have been mandated but are not expected to come out until the fourth quarter. CSFB and Citi are leading the financing backing Kohlberg Kravis Roberts & Co.'s $4.3 billion acquisition of PanAmSat and UBS is leading Leonard Green & Partners' buyout of Hollywood Entertainment Corp. Bear Stearns and Lehman are co-documentation agents on the PanAmSat deal. These credits are expected to hit after Labor Day.