Upload
franz-von-bradsky
View
950
Download
1
Embed Size (px)
DESCRIPTION
Panel discussion at the 2010 Northwest Growth Financing Conference
Citation preview
NW Growth Financing ConferenceThe Thawing of the Credit Markets:
Is Your Company Freezer Burnt?Moderator: Curtis Fraser, Chase
Glenn Burroughs, PNC Business CreditThomas Cleveland, Access Business Finance
Raymond Yager, Fifth Third Bank
2© Fifth Third Bank | All Rights Reserved | For Internal Use Only
SPONSORED SYNDICATED LOAN MARKET2Q2010
3© Fifth Third Bank | All Rights Reserved | For Internal Use Only
Sponsored issuance increased 281% year-over-year and 78% over 1Q10 to $11.7 billion.
However, the 1Q10 mini-revival in dividend deals and even a few repricings stalled in June as the loan market cooled. Leaving sponsors to focus on sponsor-to-sponsor trades.
Through June, sponsor-to-sponsor deals totaled $10.5 billion, or 39% of overall activity, the highest share on record.
Sponsored Volume 2Q10
Source: S&P
Source: LPC
Middle Market Sponsored Volume
4© Fifth Third Bank | All Rights Reserved | For Internal Use Only
Source: S&P
Middle Market Sponsored - Leverage
The leverage multiples for middle market transactions are now in the 3.00x-3.50x range on a senior basis and 4.50x to 5.00x on a total basis.
This increase has been driven by a myriad of factors : More liquidity in the market; Still tepid “actual” deal flow; Improved visibility in financial projections from sellers; Lower anticipated defaults in lender portfolios resulting in a more accommodating stance from credit
committees; A reversion to mimicking the broadly syndicated market for structure; and The desire to put an early dent in 2010 budgets.
Avg. Debt/EBITDA Ratio for Sponsored Middle-Market Transactions
5© Fifth Third Bank | All Rights Reserved | For Internal Use Only
Avg. Spread of Sponsored Transactions 1997- 2Q10
Lenders are still expecting sponsors to contribute at least 30-40% equity to capital structures.
The volatility in the loan market has led to increased pricing over 1Q10 levels with pricing in the L+500-550 bps range with 1.75-2.0% LIBOR floors and 98 OID’s.
Source: S&P
Note: Middle Market issuers defined as issuers with EBITDA < $50mm.
464.06
Middle Market Sponsored - Pricing
481.25
6© Fifth Third Bank | All Rights Reserved | For Internal Use Only
Note: Middle Market issuers defined as issuers with EBITDA < $50mm.
Pro Forma Credit Statistics of Sponsored Middle-Market Transactions
EBITDA is adjusted for cost savings and synergiesData excludes Media and Telecom prior to 2002
Source: S&P
7© Fifth Third Bank | All Rights Reserved | For Internal Use Only
Source: S&P Note: Middle Market issuers defined as issuers with EBITDA < $50mm.
Middle Market Sponsored Volume by Industry – 1H10
8© Fifth Third Bank | All Rights Reserved | For Internal Use Only
Source: S&P Note: Middle Market issuers defined as issuers with EBITDA < $50mm.
Middle Market Sponsored Volume by Purpose – 1H10
9© Fifth Third Bank | All Rights Reserved | For Internal Use Only
Source: S&P
Dividend Financing
Dividend financing has been a major theme this year as private equity firms tap the now liquid debt markets to harvest gains.
Through June 30th, issuers have placed $10.5 billion (total) and $8.8 billion (sponsored) of loans and bonds to back dividends payments, versus just $8.0 billion (total) in all of 2009.
2010’s class of dividends have been relatively conservative so far, with rating agencies and accounts generally skeptical of equity extraction.
The average post-dividend leverage multiple for 2010 deals is 4.3x.
2010 dividends have allowed PE firms to recoup 76% of their original investment, on average (although barely half of 2006’s 147%).
10© Fifth Third Bank | All Rights Reserved | For Internal Use Only
OVERVIEW OF FIFTH THIRD - SFG
11
SFG Middle Market View
Senior Leverage:
3.00x - 3.50x Total Leverage
4.25x - 5.00x Minimum Equity Contribution
35%-40% Senior Pricing (L + bps)
475 – 525 Floors (bps)
150 – 200 Closing Fees (unrated deals)
1.50%-2.00% Amortization (unrated deals)
5%+ p.a. Excess Cashflow Recapture
50-75% Tenors
5 years Delayed Draw Term Loans
Yes Covenant Package
Leverage + FCCR Financial Covenant Cushions
20% Full Underwrites
Yes Market Flex Language
Economics
This is Fifth Third’s view of middle market transactions today.
12
Comparable Transactions
Bank Failures- S& L Crisis vs. todaySource: FDIC
S&L Crisis• 1,409 banks failed between 1989 and 1993• Cost of the crisis $160.1 billion
Today• 2008 bank failures – 25• 2009 bank failures – 140• As of July 16, 2010 – 105• Troubled banks – 700 +• Net charge offs
– 2006 - $ 27.0bil– 2007 - $ 44.1bil– 2008 - $ 100.4bil– 2009 - $ 187.4bil– Q1 2010 - $52.4bil
Asset ValuesSource: GoIndustry DoveBid
• Semiconductor and PCB industries - In a current state of growth with high demand for high grade good quality equipment. Lead times for new equipment is forcing buyers to the secondary market.
• Transportation- Alternate fuels have not really hit this market in a big way. Hybrids are expensive and may be difficult without government supported tax breaks. California new laws will create problems in this sector as conversion to less polluting engines is expensive. Other states will follow.
• Bio-Pharmaceuticals- Steady and strong with consolidation in R&D. This is an industry that quickly obsoletes older equipment when testing and research are through.
• Plastics-Injection molding is the largest sector in this industry with extrusion and blow molding the smaller sectors. Performance is estimated to be up for 2010 from 2009 for Injection, and dropping somewhat for extrusion and blow molding.
• Current conditions - There is an uptake in the market. Lower inventories have created the move up in manufacturing. The question is, whether it is sustainable and for how long. Many companies have cleaned up their bottom lines and are working with fewer people. Bottom line, we need to invest in manufacturing goods the world wants to buy.
Machinery & Equipment Value Trends
Pharmaceutical / Personal Care Products Chemicals Food & Beverage Metalworking Plastics Printing / Bindery
Used Equipment Pricing: STABLE
Used Equipment Pricing:STABLE
Used Equipment Pricing:STABLE
Used Equipment Pricing:STABLE
Used Equipment Pricing:STABLE
Used Equipment Pricing:STABLE
Used Equipment Trade: UP
Used Equipment Trade: STABLE
Used Equipment Trade: STABLE
Used Equipment Trade: UP
Used Equipment Trade: UP
Used Equipment Trade: STABLE
Used Equipment Value Trend:
STABLE
Used Equipment Value Trend: STABLE
Used Equipment Value Trend: STABLE
Used Equipment Value Trend: STABLE
Used Equipment Value Trend:
UP
Used Equipment Value Trend: DOWN
Heavy Mobile Equipment Appraisals
Agriculture Boiler / Compressor /Generator
Construction Crane Rail / Intermodal Truck & Trailer
Used Equipment Pricing:UP
Used Equipment Pricing:
UP
Used Equipment Pricing:STABLE
Used Equipment Pricing:STABLE
Used Equipment Pricing:DOWN
Used Equipment Pricing:
UP
Used Equipment Trade: UP
Used Equipment Trade: UP
Used Equipment Trade: STABLE
Used Equipment Trade: DOWN
Used Equipment Trade: STABLE
Used Equipment Trade: STABLE
Used Equipment Value Trend: UP
Used Equipment Value Trend: UP
Used Equipment Value Trend: STABLE
Used Equipment Value Trend: STABLE
Used Equipment Value Trend:
UP
Used Equipment Value Trend:
UP
Great American GroupMachinery & Equipment
Above data based on Great American Group’s liquidation activities in addition to consultations with our network of commodity-specific advisors. Participants compared used equipment values and level of trade observed in Q2 2010 as compared with Q1 and projected value trends into Q3.
Dodd-Frank Wall Street Reform and Consumer Protection Act
Implications
– Require in excess of 243 new rule makings by 11 different federal agencies.– Expect 5,000 pages on new regulations. Promises to generate historic levels of
red tape.– No expiration date on powers.– Creates environment of regulatory uncertainty and deter lending in the near
term and increase the cost of credit.– Eliminates the use of Trust Preferred Securities by Bank Holding Companies to
raise Tier 1 Capital- higher level of capital will be required.– Derivatives more costly impacting producers of commodities and food.
Provide permanent bailout authority to FDIC
– Alters the use of the FDIC from a traditional deposit insurance that guarantees the same deal for every bank to a tax you pay the government and the government decides which bank it wants to replace.
– Increases the cost of non-deposit funding and the static saving for smaller banks disappears. Affects the pricing and availability of home loans.
– Insurance premiums will increase due to higher insurance limits and no limit on the size of the FDIC fund.
– Trust the same regulators that Failed the last time.
New 10 member Financial Stability Oversight Council and a new Bureau of Consumer Affairs
– Expect a destabilized financial system by stifling innovative products while failing to detect dangers posed by existing ones.
– Increase in credit costs for consumers and businesses tighter credit markets as fewer loans will be granted.
– New disclosure and reporting requirement adding to the compliance costs.
– Banks forces to invest in lawyers and lobbyists to keep up with the law.
– Assumes that policy makers are able to predict financial crisis.
Fat Cat Banker
Fannie and Freddie Forever
– Lack of Government sponsor enterprise reform makes the bill an inadequate response to the 2008 financial crisis.
– Hundreds of provisions unrelated to the original mission and fails to address the major cause of the mortgage meltdown.
– According to the Wall Street Journal- it weakens the US economy and reduces economic growth.
– Ignores the role of loose monetary policy in driving the housing bubble.