NEW YORK--(BUSINESS WIRE)--Fitch Ratings has published its quarterly leveraged market synopsis, the 'U.S. Leveraged Market Quarterly.' This edition reviews second quarter 2015 activity, recent healthcare M&A trends, and middle-market leveraged loans.
SECTOR SPOTLIGHT: Healthcare M&A Bolstered by Attractive Financing Environment and Evolving Industry Landscape
Fitch expects healthcare M&A to continue at a heightened pace as companies in all subsets of the industry are contending with secular shifts that are creating both challenges and growth opportunities. Continuous M&A has strained ratings flexibility in the near term and the strength of subsequent credit profiles will depend on disciplined debt pay-down and growing EBITDA from the accretive acquisitions.
However, it is possible that companies will become more comfortable operating with higher debt levels as the low interest rate environment in the U.S. and Europe is helping defray the cash flow impact of interest expense from transaction-related debt. Companies' ability to produce meaningful EBITDA and free cash flow (FCF) will be instrumental to maintaining credit profiles and recent deals will need to prove synergistic for ratings stabilization.
Competition for attractive assets has increased in the active acquisition environment, causing some companies to pay up for deals. Valeant Pharmaceuticals increased its offer on Salix Pharmaceuticals to beat out Endo International's bid in March 2015, adding an additional $1. billion to its original $14.5 billion offer price. Horizon Pharma is also paying up for Depomed, Inc., offering a nearly 60% premium on the stock price in its hostile takeover bid, revised this month. Higher asset prices have increased the need for debt funding. Total debt for Fitch's high-yield healthcare universe has increased by $16 billion, or 12% from first-quarter 2014 to first-quarter 2015. Despite the increase in debt levels, financial flexibility has not been significantly compromised, since most recent transactions have been EBITDA accretive; debt leverage has decreased by more than a full turn from first-quarter 2014 to first-quarter 2015.
MIDDLE-MARKET LEVERAGED LOANS
After two years of record issuance, 2015 is off to a slow start and is on pace for the lowest middle-market loan issuance since 2009. Middle-market loans remain attractive to investors for a variety of reasons including yield premiums, lower leverage, and fewer cov-lite structures. However, the middle market is smaller in total outstanding volume with fewer participants, and as a consequence is less liquid.
The full report 'U.S. Leveraged Market Quarterly' is available on Fitch's website at www.fitchratings.com or by clicking on the link.
For more information, visit: www.fitchratings.com/usleveragedfinance.
Additional information is available on www.fitchratings.com
U.S. Leveraged Market Quarterly -- Second-Quarter 2015