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PRINT THIS PAGE Sharp increase in number and volume of recapitalisations in Western Europe03/08/2005. Source: AltAssets. 
 European private equity firms sharply increased their borrowing in the first half of this year, signalling the enduring appetite of credit markets to provide finance for leveraged transactions. There were 74 LBO deals in the first six months of 2005 worth a combined €25bn, compared with 48 deals worth €12.5bn in the same period of 2004, according to Fitch Ratings.
Also significant was the scale of refinancing activity within the aggregate total, itself generally undertaken to provide the investors with a dividend payment in advance of any realisation. Fitch said 43 per cent of the deals in the first quarter and 50 per cent in the second quarter were refinancings.
Leverage levels remained high in the first half of the year, while the average equity component of LBO transactions fell to what Fitch called 'historic lows'. The average senior and total leverage of 3.9x and 5.1x in FY 2004 increased to 4.3x and 5.4x in the first half of 2005.
Refinancings have been one of the main drivers of the big increase in distributions to investors in private equity funds over the last 12 to 18 months. Concern has been mounting that the present scale of refinancing activity is unlikely to be indefinitely sustainable but there is little indication as yet of when the situation will turn around.
Copyright © 2005 AltAssets
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