Market Update — First Quarter 2008

The number of large cap deals occurring in 2007 decreased toward the end of the year because of the decline in credit availability for the larger deals. During that same end-of-year wind down, the middle market held steady with continued deal flow and transactions moving to closure without delay or getting canceled due to a lack of funding as happened in the large cap deals. Since then, credit tightening has begun to hit the middle market. According to Standard & Poor’s LCD data for the first quarter of 2008, total transaction leverage is averaging 4.8x EBITDA (versus 6.2x for the same period in 2007). Senior debt leverage has fallen even further to 3.7x (from 5.4x last year). Part of this is likely due to the risks associated with lending in an uncertain economy as exists today, with record oil prices, reduced consumer confidence, increasing inflation, falling housing starts, and rising unemployment. Another contributing factor is likely to include the reduced amount of capital that some commercial banks have to lend given their trouble with the sub-prime markets. Moreover, when talking with various lenders around the country, the sense is that pricing for transaction funding is increasing (albeit by small amounts) even while the Federal Reserve reduces its prime lending rates.


Download the complete Market Update — First Quarter 2008.