Private equity refinancing

Reuters reports that private equity owned companies face difficulties refinancing billions of dollars of existing buyout loans and raising extra debt for acquisitions. Banks may be unwilling or unable to lend more money or extend revolving credits to existing borrowers that were put in place during the bull market which may now contravene new US leveraged lending guidelines. Loans can be deemed “criticised” or considered “non-pass” if a company cannot amortise or repay all senior debt from free cash flow, or half of its total debt, in five to seven years. Leverage over 6x is also seen as problematic. While attention has focused on new buyouts to date, many existing loans are now likely to fall foul of the guidelines when they are refinanced.. “It could create a supply of paper that’s not refinanceable in the broader syndicated loan market” according to DDJ Capital Management. “It either gets refinanced in the private market, the bond market or it defaults and gets restructure. In either case, the cost factor goes up”.