Banks Demand More Protection on New Risk Amid Volatility

Buyout activity is picking up pace in Europe, but a number of banks are taking a cautious approach to new risk, looking for higher pricing, more flex protection and in some instances fuller fees on junk-rated debt underwrites against a backdrop of heightened volatility, inflation and rising rates.

Russia’s invasion of Ukraine felled a positive start to the year by all but shutting Europe’s high-yield bond and leveraged-loan market, leaving banks sitting on $37 billion of existing underwrites they have so far been unable to sell down.

The assumption is that banks will attempt to sell a lot of that following the Easter holiday weekend in mid-April, but an increase in potential M&A deals means many have also been asked to commit to new debt financings.

Some M&A situations are drawing to a conclusion including KKR & Co. nearing a deal for Spanish fertility clinic chain Ivirma Global and Carlyle Group Inc. and PAI Partners’ acquisition of women’s health business Theramex. Other processes are still in progress for the U.K’s drugstore chain Boots and Telecom Italia.

To win a bid, a buyer has to have committed debt financing in place. In an unusual scenario, but one that will become increasingly common, KKR has committed debt financing from both private credit and banks for Ivirma.