More than $138bn of debt linked to PE-backed acquisitions is expected to hit US and European credit markets in the coming months, giving investors a substantial pipeline of leveraged finance opportunities as M&A activity gathers pace, according to a report by Bloomberg.
According to JPMorgan, the US pipeline of leveraged buyout financing is at its highest level since 2007, while European volumes are the strongest since 2021. Banks are already bringing some transactions to market, with much of the anticipated issuance expected between late September and early October.
The pipeline comprises around $92bn of US financing and nearly €40bn ($46bn) in Europe, excluding potential US debt issuance of as much as $80bn to finance data centre transactions.
The expected supply includes funding for take-privates, corporate carve-outs and secondary buyouts. With credit funds receiving strong inflows and collateralised loan obligation issuance increasing, the market is expected to have sufficient liquidity to absorb the new paper.
However, the volume of issuance could give investors greater negotiating power. Higher-quality borrowers and sponsors are likely to secure tighter pricing and more flexible terms, while weaker credits may face wider spreads and tougher documentation.
Among the transactions already moving through the market is a $2.1bn loan being marketed by Citigroup to support KKR’s acquisition of medical-device maker Integer Holdings. Banks have also launched a €2.8bn financing package for Platinum Equity’s acquisition of a stake in Nestlé’s water business.
Advent International’s acquisition of Polish parcel-locker operator InPost is also expected to generate a sizeable financing package, while EQT’s acquisition of Intertek is backed by around £5bn of cross-border debt. A separate €6bn high-yield bond package is being prepared for the acquisition of Italian pharmaceutical company Recordati.
Borrowers and lenders are keen to take advantage of favourable market conditions before the US midterm elections in November, which could introduce additional uncertainty.
Investor demand has remained supportive. US leveraged loan funds recorded their strongest weekly inflows since January in the week ending 2 September, according to LSEG Lipper, providing further evidence of available capital for leveraged finance.
Nevertheless, banks remain wary of underwriting too much debt too quickly. Memories of the 2022 market downturn, when lenders were left holding billions of dollars of so-called hung loans, have made arrangers more cautious about timing and syndication risk.
The issue is particularly relevant given that banks are still working to sell around $5.3bn of financing for software company Qualtrics, highlighting the potential risks if investor appetite deteriorates.
European single-B-rated term loans are currently expected to price at roughly 325-350 basis points over Euribor, potentially tightening towards 300 basis points if syndication performs strongly. Less favoured transactions could require spreads of around 375-425 basis points.
The pipeline is also extending into 2027, with a financing package of around £4bn in euro- and sterling-denominated debt already being prepared for the proposed take-private of Mitie Group by OCS Group International.
