The credit market has set off the biggest boom in history, but an important participant in the financial industry has disappeared. Private equity firms, which usually borrow as soon as they have the opportunity to buy assets, are belated and are just beginning to return to the market.
in theory, business should be booming. Borrowing costs are close to a record low, and the historic support offered by the Federal Reserve has led investors to gobble up all kinds of assets. Banks are also ready to open their checkbooks after selling billions of dollars in debt for buybacks and acquisitions; they were worried that credit markets would freeze in March.
However, there is too much uncertainty about how long the new crown epidemic will last, so private fund sponsors who have stepped on the trading brake have been staying out of it until now.
“two months ago, our clients, both corporate and sponsor, who would have considered acquisition financing, were focused on their existing portfolios,” says John McAuley, head of Citigroup’s North American leveraged financing. “Now these companies and sponsors are starting to assess opportunities and become more proactive.”
Blackstone’s US $4.7 billion acquisition of equity is one of the few deals. As new business dries up, banks will have less than $10 billion of junk grade bonds to sell in the coming months, down from $30 billion to $50 billion in previous years, bankers said.
the boom in the credit market certainly helped. After the Federal Reserve said in March that it would buy corporate bonds to support the financial system, investors were relieved and channels for companies to borrow money were unblocked. Underwriters are also able to provide loans promised before the outbreak of the new outbreak in the United States.
“the market is really open now, including leveraged buyouts,” says Christian Hoffmann, investment manager at Thornburg investment management in Santa Fe, New Mexico. “Dividend trading has been seen, and some very peripheral issuers have also entered the market.”