Fitch: Higher Valuations, Good Performance Lift IPO Market

NEW YORK--()--The surge in IPO volume in 2013 can be attributed to a significant increase in investor demand based on the performance of recently completed IPOs, according to Fitch Ratings. Higher valuations also helped boost the number of IPO transactions this year.

An increase in IPOs could be beneficial for many speculative grade issuers as the equity market has become another favorable source of capital to be used for debt repayment and leverage reduction. While conditions for speculative grade borrowers remain favorable, access to funding for high yield companies via IPO transactions has clearly become less difficult.

The average IPO has returned nearly 34% from its IPO price, according to Renaissance Capital. Meanwhile, the median aggregate market valuation multiple (enterprise value [EV]/EBITDA) for speculative-grade companies increased by 13% to 9.17x as of Oct. 20, 2013 since the end of 2012 after increasing 7% to 8.11x in 2012, according to Fitch's most recent EV-aluator report. If this level holds through 2013, it would be the highest median multiple in the last 10 years.

Private equity firms that had portfolio companies that were unable to be sold or monetized due to the crisis have been able to exit and return value back to their investors through new equity offerings. Historically, the IPO window for speculative-grade borrowers has been fleeting, but current market conditions support credit, making it a logical choice for companies seeking to refinance. Hilton Worldwide's recently announced $2.37 billion IPO filing could make the Blackstone Group-owned unit the third largest private equity-backed IPO on record and the largest private equity-based IPO in 2013.

A total of 210 IPO pricings have taken place thus far in 2013, making it one of the busiest years post-crisis based on the number of filings according to Renaissance Capital.

Despite the rebound in the IPO market in 2013, the number of IPO filings is nowhere near its pre-dotcom bubble levels. However, if favorable capital market conditions persist, we would expect IPO volume to continue to trend higher.

For more information on this topic, please see the following reports available on our Website at www.fitchratings.com:

Fitch's Bridging the Refinance Cliff series

U.S. Leveraged Finance Multiple EV-aluator report published on December 3, 2013

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

U.S. Leveraged Finance Multiple EV-aluator

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724678

Bridging the Refinancing Cliff (Volume VII -- Pace of Refinancing Accelerates)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709521

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Contacts

Fitch, Inc.
Darin Schmalz, +1-312-606-2324
Director, Leveraged Finance
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Kellie Geressy-Nilsen, +1-212-908-9123
Senior Director
Fitch Wire
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch, Inc.
Darin Schmalz, +1-312-606-2324
Director, Leveraged Finance
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Kellie Geressy-Nilsen, +1-212-908-9123
Senior Director
Fitch Wire
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com