Banks face challenges with refinancings
The recent market turmoil caused by the various debt crises is having an impact on the banks that provided bridge financing for PE deals in the first half of this year. The bridge loan that enables a deal to go through quickly usually has a maturity of less than a year, among others to attract favourable capital treatment, and gets refinanced by a bond issue to investors before it matures. Since the debt crises worsened just before the summer, the demand for high-yield bonds has collapsed, preventing banks from refinancing the bridge loans.
This is bad news both for the banks and the financial sponsors that did deals. The former may get lumped with debt they don’t want, especially if they already agreed to underwrite the bonds, while the latter may get saddled with less favourable terms on their financing, potentially damaging the economic rationale behind many deals. This in turn will surely affect deal flow as well, in already lean times.
