The price of debt has risen and where deals have gone through the equity required has been greater. This state of affairs looks set to stay over the coming months.
Although the average equity contribution has come down from its post Lehman peak of more than 50%, at 48%, it is still far higher than the historic average of 35% and is likely to remain so throughout 2012.
Pricing for leverage is also likely to remain high. Historically, the interest margin for seven-year amortising and eight-nine year term debt has been 200-300 basis points. Through 2009-2011 the margins have been between 400-500bps and current indications are that pricing could well increase beyond 500bps for new term loans.
There are alternatives to existing lending to LBOs, however, including alternative debt providers, non-amortising debt solutions and more asset-based lending.
The key for sponsors will be the amount of funding, cost and flexibility that such term loans may offer versus traditional senior loans.