Dealers: Meager 'committed financing' bond issuance in run-up to 2012

By Paul A. Harris

Portland, Ore., Aug. 5 - The pipeline of bridged deals expected to generate new bond issuance during the run-up to 2012 is not vast, dealers say.

Estimates range from $12 billion to $20 billion. However not all of that amount is in place, and protracted market volatility could crimp the supply, leading to an amount substantially below that range.

One syndicate banker who sees $13 billion-plus of bridged financing that appears headed to market in the run-up to the new year, admitted that a considerable portion of that amount remains to be determined.

The big deals

The post-Labor Day pipeline includes several conspicuous bridged financings which are expected to produce high yield bond issuance well north of $1 billion, the dealers say.

The list includes Sealed Air Corp.'s $1.5 billion equivalent of senior notes backing the acquisition of Diversey Holdings Inc. from the Johnson family and Clayton, Dubilier & Rice LLC.

The financing is being led by Citigroup Global Markets Inc., Bank of America Merrill Lynch, BNP Paribas Securities Corp. and RBS Securities Inc.

Kinetic Concepts Inc., meanwhile, is expected to begin syndicating a $2.15 billion bridge loan in September, according to a market source.

The bridge, all of which is expected to be taken out by bonds, includes a $900 million senior unsecured tranche and a $1.25 billion senior secured second-lien tranche, with a portion of the second-lien tranche expected to be available in euros.

Morgan Stanley & Co. Inc., Bank of America Merrill Lynch and Credit Suisse Securities (USA) LLC are leading the deal.

AES Corp. is expected to sell $1.25 billion of senior notes as part of an overall $3.3 billion of new debt backing its acquisition of DPL Inc., the parent of Dayton Power & Light Co.

The acquisition is expected to close late this year or early in 2012.

A bit further out along the timeline, but still possible as 2011 business is Energy Transfer Equity, LP's $3.2 billion of high-yield bonds backing its $7.9 billion merger with Southern Union Co., including repayment of $3.7 billion of Southern Union debt.

Sponsors take a back seat

Aside from present market conditions, another dynamic that is constricting the supply of bridged deals is a reduced level of activity on the part of equity sponsors, sources say.

"Although debt remains cheap, which expands both spending capacity and returns, sponsors are telling us that companies are overpriced," a debt capital markets banker said on Friday.

"The sponsors are being outbid by strategic buyers. They can't compete with strategic buyers who are going to realize synergies.

"It's not like 2006, when a sponsor could bid on a company, and then sit back and exist on the free cash flow.

"We are seeing M&A activity," the banker said, "but most of it is corporate to corporate."

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