About $138 billion of buyout debt is expected to hit markets in the coming months, the highest volume since before the 2008 financial crisis, according to JPMorgan Chase. Buyout debt is the borrowing a company takes on when acquired through a leveraged deal, meaning a purchase funded mostly with loans rather than equity. Borrowers are moving early, trying to secure investor demand before a wave of competing offerings lands at once.
What the pipeline actually contains
JPMorgan breaks the expected issuance into roughly $92 billion in the United States and nearly $46 billion in Europe, both figures covering leveraged mergers and acquisitions activity. Those numbers exclude debt tied to data centers, which could add close to $80 billion more to the U.S. tally alone.
The transactions span three categories: take-private deals, in which a publicly listed company is bought out and delisted; corporate asset separations; and buyouts where existing private equity owners are involved. Noah Roth, JPMorgan's EMEA leveraged-finance head, said the deal activity has created an unusually large pipeline on both sides of the Atlantic. Most of the issuance is expected to reach the market before the U.S. elections in November.
Who absorbs all of this, and on what terms
Demand should be strong enough to absorb the supply, helped by inflows into credit funds and continued issuance of collateralized loan obligations. A CLO, in plain terms, pools leveraged loans and sells slices of them to investors at different risk levels; they are among the biggest buyers of this type of debt.
A crowded market, though, hands more bargaining power to investors. Jeremy Duffy, chair of Cahill Gordon and Reindel LLP's European leveraged finance practice, told Bloomberg that lenders are likely to remain selective, paying close attention to a borrower's industry and capital structure. Borrowers behind highly sought-after deals should be able to negotiate lower rates and looser terms. Riskier transactions are expected to come with higher costs and tighter lender protections.
Two recent transactions illustrate the pace. Victory Capital Holdings announced plans to acquire First Eagle Investments in a deal backed by $3.5 billion of term loan B financing, a type of leveraged loan typically sold to institutional investors rather than banks. JPMorgan expects the financing wave to extend into next year, with several transactions already in the pipeline. Goldman Sachs is separately arranging $1.95 billion in secured debt to support Amwin Group's purchase of Steadfast Group.