Buyout firms have renegotiated a record 23 billion euros ($31 billion) of their European companies’ debts via loan and high-yield bond markets in the first nine months of this year, according to S&P’s Leveraged Commentary and Data.
That is a rise of almost two thirds on the volume last year and beats the 17 billion euros ($23 billion) refinanced in 2011, the data show.
Strong demand for higher-yielding debt from investors has pushed down borrowing costs, encouraging private equity firms to renegotiate their companies’ debts at more attractive terms.
This pushes back financing pressures for many companies, which were expected to fall into trouble a few years ago amid a backdrop of slowing economies and risk-averse investors who did not want to lend money to riskier businesses.
Refinancing volumes in Europe also mirror record activity in the United States, where managers have completed $149 billion of loan and high-yield bond refinancing in 2013, eclipsing previous years and coming ahead of an expected rise in interest rates brought by the Federal Reserve unwinding its monetary stimulus.
“Everyone who has been able to refinance has done so this year. The terms are much better than they were a few years ago,” said David Parker, a partner at private equity advisor Marlborough Partners.
European companies to have refinanced this year include British motoring services firm the Automobile Association, United Biscuits and UK child seat maker Britax.
Buyout houses have also seized on strong credit markets to load up their portfolio companies with more debt that they use to pay themselves and their investors, in a controversial transaction known as a dividend recapitalisation.
Volumes of dividend recaps total $11.2 billion in Europe, according to the S&P LCD data, the biggest since 2007.
However, buoyant credit markets have not resolved a continuing problem for private equity managers in Europe this year: the lack of new deal opportunities.
Despite a recovery in deal flow in the third quarter, for the first time ever in Europe the volume of debt refinancings plus dividend recapitalisations in 2013 has totalled more than the amount buyout houses have borrowed for new deals.
“There’s been less deal flow because of the economic climate but the problem is also that there are still so many buyout firms. There’s so much competition,” Parker said, adding that between 60 and 70 percent of his business in 2013 had been refinancings with the rest primary deal flow, the opposite of a typical year before the financial crisis.
Tommy Wilkes is a reporter for Reuters News in London