Exciting and scary are the two words that best sum up global leveraged finance in 2007. The market is exciting because the deals are getting bigger and more complex and it is scary because the pricing is getting tighter and the financing structures more aggressive. Deal size has been the most noticeable feature in leveraged finance with transactions getting bigger and bigger and with no company seeming too big to fall into the hands of private equity. The US has led the way with the US$45bn buyo

Leveraged finance has been the buzzword in Asian financial circles for the best part the past five years with China and India considered critical for the financing activity’s growth in Asia. That dependence has increased further as traditionally strong LBO markets such as South Korea and Taiwan have slowed down, leaving Australia as the region's most active LBO market. China’s LBO activity has sputtered in stops and starts, while India’s has been more consistent and steady largely because LBOs h

China has long been a hotbed for mergers and acquisitions and with ample opportunities to book high-yielding assets, international lenders have been quick to establish leveraged financing teams in a bid to get a share of the Chinese LBO pie. Interest in Chinese LBOs seems to exceed their success, however, as so far only one deal – GUM Holdings' US$181m five-year LBO financing – has succeeded in syndication. The real challenge in getting GUM’s LBO away was the market’s perception of regulations i

Australia and New Zealand have witnessed a flowering in demand for leveraged financing amid unprecedented levels of private equity activity that has sought to return some of the region's best-known listed companies back into private hands. The proposed A$11.1bn sale to private equity firms of national carrier Qantas Airways has prompted heated debate in Australia. The next iconic Australian brand up for grabs is retailer Coles. Final plans are being formulated by Coles management for the sale of

The market in Central and Eastern Europe reached a milestone earlier this year with the completion of the debt supporting the Falcon Consortium's buyout of two telecom assets in the Czech Republic. Backed by a debt package of €770m, the loan closed well oversubscribed resulting in a structural and pricing flex. This success showed that sponsors can achieve similar terms in central Europe to what they can achieve in the more mature western European markets. "It is hard to generalise given the div

Lending volumes in the US increased 5.8% in the first quarter of this year compared to the same period last year, according to data from Thomson Financial. In that same period investors have not only experienced more loan volumes, but also novel structures. Clearly the market has become used to the fact that second lien loans are here to stay, despite the absence of any major restructuring event to indicate how lenders would fare in a bankruptcy (the chief concern among second-lien investors). S

Volatility stemming from the global equity markets, concerns over a looming economic slowdown and uncertainty about the ultimate effects in the US economy of the sub-prime market mortgage and housing market has trickled down to both the high-yield and the loan market. This uncertainty is already affecting LBO-related deals both in the primary and secondary markets. Leveraged investors have necessarily become more disciplined. This sentiment can be seen in the performance of recent high-yield iss

In fact, Europe seems poised for a major breakthrough in LCDS. However, there significant obstacles stand in the way of the market's development. "Loans are much more esoteric and less standardised than bonds and that has an impact on the LCDS product," said Shane O’Gorman, a loan CDS trader at Credit Suisse in London, explaining that LCDS is a more difficult product to get right than regular CDS. "LCDS in Europe (and initially in the US) is cancellable and references a particular lien of a part

The first quarter saw the acceptance of investor flexibility establish itself as a guiding principle in the leveraged loan market. A recent spate of European LBO financings have been launched without an A tranche or have undergone radical structural flexes after syndication. At the same time price flexing, a precursor trend in 2006 to the current round of structural flexing, has become increasingly aggressive and now shows signs of spilling over from the leveraged to investment grade loan market

The three main issues that have prompted comparisons with the US are deal size, US-style repricings and covenant light (which will be examined in another story in this report). Deal size basically means that deals are getting bigger across both sides of the Atlantic but not to the same extent in Europe as in the US. When Danish telecom incumbent TDC was bought out for US$15bn in mid-2006, European bankers believed that the era of the mega-jumbo had arrived and that it was only a matter of time b

There is a general sense that globally the market is looking very toppy on just about all measures – valuations, rising leverage, falling equity contributions, disappearing covenants and increasingly back-ended amortisation structures to name but a few. Perhaps the biggest concern is that default rates are virtually zero – against a historical average of 4%-5% – and that the economic cycle has now firmly entered a phase of rising interest rates on both sides of the Atlantic. Bankers, however, ar