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Any plumber will tell you that they rarely find diamonds when they clean clogged pipes. While First Data's debt package is the undisputed harbinger as far as clearing open the credit markets again, other big deals with solid underlying companies but problematic structures are waiting to get through the pipeline and into the market. There may be gems of companies waiting to be financed, but they are buried under the sludge of covenant-lite loans and PIK toggle notes.
"Among the LBO deals, the First Data deal is viewed as the most straightforward to bring to the market," said Loren Norton, a high yield portfolio manager with Direxion Funds. "If the First Data deal can't get done, there's nothing else that's going to get done. Everything else is riskier."
A Boston-based portfolio manager agreed. "The problem with this deal (First Data) and many of the ones to follow is the capital structures that are being formed and taking shape in context of LBOs," he said. "The leveraged multiples are meaningfully higher in this cohort of LBO financings. First Data is among the better quality deals to come, but again the capital structure is arguably on the borderline of being untenable."
The much-anticipated deal managed to get a covenant added to it after a weekend of negotiation. Buyout...