Cautious Optimism in the Leveraged Finance MarketExclusive Interview with
Joshua Thompson, Shearman & Sterling LLP
In this exclusive LegalMindsTV interview, Sherman & Sterling’s Joshua Thompson discusses the outlook for leveraged finance transactions.
“We’re seeing a number of interesting deals in the market,” says Thompson. “In addition to bank bond deals and complex refinancing, we’re also seeing private equity sponsors taking the initiative in what remains a relatively good market to do acquisitions and refinance their existing portfolio debt.”
In regard to international activity, he says their firm is continuing to see a vibrant market in Asia, as well as an active London and European market, which continues to remain open to new deals and refinancing.
“Clients need to be engaged with preparing themselves for a number of different potential scenarios in the market,” advises Thompson. He advises clients to continue to engage with providers of debt finance and to understand and works with external advisors to optimize debt structure.
There’s a sense of optimism in the market, Thompson concludes. “But it’s cautious optimism.”
We act for many of the significantly late arrangers in the market. Our flow of information suggests that there is somewhat a backlog of commitments but we would anticipate that backlog will clear, and that the market will open again actively after the summer. recent trends in deal terms suggest that the private equity sponsors still have somewhat of the upper hand in terms of negotiating.
But, that being said, the credit issues which lenders remain focused on are total leverage, the de-leveraging story, management of fixed charges and ensuring structural integrity with the credit, I think that reflects a fair balance between the interests of lenders and borrowers . We suspect that there will remain a relatively good deal of flexibility for top tier sponsors in the market, and at later ranges continue to compete very aggressively for their business.
We don't see any dramatic changes in market terms occurring, rather a gradual evolution. That's domestically. Internationally, we continued to see interesting and vibrant markets in Asia. Our colleagues in Asia did one of the few so-called dim sum bonds, which are RNBS denominated bonds out of Hong Kong.
Our colleagues in London and Europe remain very active, although they face similar economic conditions as we do. And the markets, you know, continue to remain open for new deals and continue to remain open for refinancings in Europe. And we continue to see a good deal flow in those jurisdictions.
The outlook for leverage finance in the United States remains relatively robust going into , going through the third quarter and into the fourth quarter of this year. We continue to see what we what we feel is a steady drumbeat of market activity. That being said the larger macroeconomic issues which we're seeing, such as potential sovereign defaults, would be a radical, potentially resulting a radical series of skating events in the leverage finance market which is difficult to predict at the moment but which we remain very focused on.
The outlook also will be contingent on general growth in the United States, and valuations for private equity firms. In particular of their assets. That's M and A teams, see a robust pipe line there and so we would suggest that leverage finance would correlate with what they're projecting as well.
Clients need to be actively engaged with preparing themselves for a number of different potential scenarios in the market. To some extent if you risk adverse, now is the time to start looking heard at your exposure in the debt markets if you believe that there are potentially adverse sovereign risk events that could materialize in the coming months.
That being said, constantly engaging with your potential providers of debt financing, understanding and working with your external advisor so whether that's your legal team, your accountants, your tax advisors, to optimize your debt structure is something that we would always encourage our clients to do.
We do that with our clients. We want to make sure that they're seeing the best opportunities in terms of leverage finance, whether we're acting for the borrower, or the private equity firm, or the late arranger.
We think there is a sense of optimism in the market, but it is cautious optimism, and assisting our clients to execute on great transactions and on financing which is highly tailored to their needs is something that we continue to see going forward
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Joshua W. Thompson
Partner, Shearman & Sterling LLP
Related Practices, Industries & Focus Areas:
New South Wales, Australia
University of New South Wales, LL.B., summa cum laude
University of New South Wales, B.A.
Selected Business and Professional Activities:
Clerkship: High Court of Australia, Justice W.M.C. Gummow
Member, International Bar Association (Former Vice-Chair of Corporate Counsel Forum)
New York, NY 10022
To see a full bio, visit: http://www.shearman.com/joshuathompson
Shearman & Sterling has been advising many of the world’s leading corporations and financial institutions, governments and governmental organizations for more than 135 years. We are committed to providing legal advice that is insightful and valuable to our clients. This has resulted in groundbreaking transactions in all major regions of the world.
For additional information, visit: http://www.shearman.com
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