Appetite for high yield surges as banks compete for deals.
BY Caroline Cakebread | August 23, 2010
Banks are competing for high-yield deals in the face of plunging yields – another sign that the appetite for risk is coming back. Here’s what Bloomberg has to say:
Credit Suisse Group AG agreed to provide the biggest high-risk, high-yield debt package to finance an acquisition this year as banks and investors are showing signs of growing risk appetite.
Reynolds Group Holdings Ltd., owned by New Zealand’s richest man, Graeme Hart, may use $5 billion in leveraged loans and junk bonds to finance the largest U.S. acquisition by a speculative-grade company this year, tapping credit markets to pay for 83 percent of the takeover with borrowed money.
Takeovers are being funded with bigger chunks of debt as banks led by Bank of America Corp. and JPMorgan Chase & Co. compete to arrange high-yield deals that have already exceeded the total amount completed in 2009, according to data compiled by Bloomberg. The rush to credit markets comes as issuers seek to take advantage of some of the lowest risk premiums since June 2008 even as the U.S. economy slows and high unemployment threatens consumer spending.
“Deal sizes are getting bigger because the investor appetite is there, the willingness of banks to underwrite transactions is a function of their ability to sell the debt,” said Tom Newberry, the New York-based head of global leveraged- finance capital markets at Credit Suisse, the third biggest arranger of high-yield debt in the U.S. “We expect there to be more than $5 billion of capacity in the market for the Reynolds transaction so we were willing to commit to the financing.” Click here for the full article.