2010-06-01 17:43:05 -

Morgan Joseph & Co. Inc.

- Recovery in the syndicated and high yield loan markets is providing much needed capital to leveraged and cash flow issuers.
- Financing for middle market companies has improved, yet remains limited, as the market remains reluctant to commit longer term capital to less liquid, smaller primary issuances in exchange for yield.
- Market signals point to increased buyout activity from the sponsor community, but first quarter M&A volumes remained depressed and dominated largely by strategic buyers.


These and other fast-moving trends are analyzed and discussed in the latest Morgan Joseph & Co. Inc. Restructuring Quarterly Newsletter, which notes that the “unprecedented resurgence in the debt capital markets has many market participants wondering if another credit bubble is

on the horizon.”

At the same time, the Newsletter comments that with collateralized loan obligations (CLOs) providing the preponderance of leveraged loan investments in the middle market, and high yield securities refinancing CLO credits, CLOs have found themselves awash with capital to reinvest.

Says James D. Decker, a Morgan Joseph Managing Director who heads the Restructuring Group, “Since CLO funds were largely raised during the 2005-2007 cycle and have investment periods of five to seven years, significant amounts of capital may begin to recede from the market starting next year. The question then is, what will be the source of capital refinance for the future wave of leveraged maturities?”

The Newsletter comments that current completed LBO transactions involve equity contributions that remain well above historical norms since debt capital is still not available on the aggressive terms found in 2005-2007. It adds, too, that LBO purchase price multiples in the first quarter of 2010 were climbing towards 2007 levels, as a result of macroeconomic conditions and corporate operating performance stabilizing, and latest 12 month EBITDA data improving.

Meanwhile, the report adds, despite the credit market recovery, overall DIP (debtor in possession) financing remains expensive for borrowers.

“DIP facilities remain somewhat elusive and those that are raised command a sizable premium versus the historical market, with a greater preponderance of DIP facilities being provided by pre-petition lenders rather than new money DIP providers.”

And, in a snapshot of the financing market, it observes.

- Asset Based Loans and Revolvers – The market has become highly competitive.


- Cash Flow Term and Second-Lien Markets – With growth in demand for large new issues, there’s been an increased willingness for some loan participants to take on cash flow term and even second-lien exposure.


- Mezzanine and Junior Capital – Lenders in this category continue to be an important source of junior funding for smaller middle market borrowers.


- Secondary Markets – Due to the Federal Reserve’s money policies and improving economy, first quarter 2010 secondary credit spreads fell to their lowest level since December 2007.


- High Yield Market – Despite increased volume and declining pricing, the market thus far is limited to issuances of approximately $150 million, rendering it essentially off limits for many mid market companies.



About Morgan Joseph

Morgan Joseph & Co. Inc., a New York City headquartered full service investment bank, provides financial advisory and capital raising services including M&A and restructuring advice, and equity and debt private placements and public offerings. In addition, Morgan Joseph provides research and trading for institutional clients. Morgan Joseph’s staff of over 130 includes more than 69 investment bankers, who are highly experienced professionals mostly from major Wall Street firms and intimately familiar with the issues facing middle market companies. The firm is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investors Protection Corp. (SIPC).

The five Principals managing the Morgan Joseph Financial Restructuring Group collectively have over 70 years of financing and restructuring experience. Since 2001, they have completed more than 80 company and creditor transactions, and restructured approximately $25 billion of debt in in-court and out-of-court transactions.

Note to the Media: A copy of the full report is available by contacting Cristina Bacon, of Anreder & Company, at cristina.bacon@anreder.com : mailto:cristina.bacon@anreder.com , or 212-532-3232.



Media:Anreder & CompanySteven S. Anreder steven.anreder@anreder.com : mailto:steven.anreder@anreder.com Cristina

Bacon cristina.bacon@anreder.com : mailto:cristina.bacon@anreder.com Michael

Shallo michael.shallo@anreder.com : mailto:michael.shallo@anreder.com 212-532-3232