U.S. senior debt market creaks open

Dateline: New York

Five times leverage is back!

I can report that senior secured debt loans are coming back to the U.S. market. With relatively low coupons, and what can only be termed as “high” leverage given the past 24 months, this bodes well for the private equity market. The providers of this capital aren’t the money centre banks, but the traditional buyers of syndicated Senior Secured Note deals, such as U.S.-based insurance companies (see prior post “Is the credit crunch ending?” Feb 2-10). They are getting first secured paper, but they are being flexible when it comes to leverage: even 5-6 times EBITDA has been achieved.

And this has all started to come to pass since January 1st. While not a trend in the making, it is definitely a sign. Although the High Yield market had been open for some time, this is a new (old) class of capital providers demonstrating a confidence in the markets and overall economy. Sound the trumpets!

The debt casino may be beginning to open, once again.

MRM