Plenty of Cheap Debt to Go Around
U.S. banks have repaired their balance sheets and have ample credit capacity available to provide commitment letters supporting M&A activity.
Since the reports emerged that Dell (DELL) (A+/UR-) may be subject to a leveraged buyout, bond investors quickly dusted off their LBO handbooks and began to play some defense in their portfolios.
Bonds of those issuers that historically have been identified as LBO candidates were soon offered out into Wall Street, but activity in the secondary market became very sketchy. Trading in those names dried up, as sellers were unwilling to lower their offers enough from pre-Dell announcement levels to entice buyers. Neither sellers nor buyers had enough conviction to find a middle ground in which to cross bonds. In the merger and acquisition community, private equity sponsors are reportedly ramping up their due diligence teams as they scour for targets, and the leveraged finance teams at the large multinational banks are updating their pitch books.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.