Leveraged Buyout Boom Is Seen Flooding Loan Markets for Months

Sales of U.S. leveraged loans are likely to stay strong for at least the next few months thanks to private equity buyout activity that is showing few signs of abating.

There are deals already in the pipeline, including Hellman & Friedman and Bain Capital’s leveraged buyout of Athenahealth Inc. That transaction is expected to include $10 billion of debt, at least some of which will probably be loans.

And there are deals that haven’t yet been announced, but are already in the works. Private equity firms with funds focused on the U.S. have about $960 billion of money to invest, according to research firm Preqin, and many are looking to put together deals before interest rates rise much further.

“They’re deploying their capital into transactions and that’s what’s driving volumes,” said John McAuley, co-head of debt capital markets for North America at Citigroup Inc. “There is a lot of money that’s been raised that needs to get invested.”

The deluge won’t last forever. Federal Reserve officials expect to raise rates three times this year and again next year, according to median forecasts. As rates rise, floating-rate debt including leveraged loans gets more expensive, and fewer buyouts will work financially.