Lenders tighten belts

06 November 2007

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Sir David Walker's working committee report is out and the findings do not have any radical implications for the private equity industry. A higher level of disclosure sooner after year-end - four months as opposed to the current nine - is easy to stomach compared with the other problems the industry is potentially encountering. Along with the findings of the Treasury Select Committee, due in the autumn, which could affect the tax treatment of capital gains, there has also been a change of sentiment in the debt markets.

Rocked by difficulties in the US sub-prime mortgage market, lenders are in the process of rebalancing the distribution of power. The heady days of being offered ever-increasing multiples of debt with fewer covenants and on better terms are over for private equity. A correction has commenced with banks slightly more assertive and private equity's refinancing of portfolio companies on hold for the moment. An instructive example is New Look. After a collapsed auction process to dispose of the company in early July, there were whisperings from owners Apax and Permira that the discount fashion retailer would be refinanced for a third time in three years. Nothing has been heard since, perhaps these plans are on ice - like those for KKR's planned EUR1bn refinancing of Dutch retailer Maxeda - postponed due to lack of investor confidence. Virgin Media, the NASDAQ-listed group with buyout suitors aplenty - Carlyle, Providence Equity, KKR and Cinven among them - has still taken the precaution of appointing UBS to help it court strategic buyers amid concerns that private equity might not be able to raise the debt to secure the deal.

Buyout players at the top end of the market may have to spend some time readjusting to a new environment in which banks still have a hunger, but have lost their previous ravenous appetite. For the mid-market, however, this change in sentiment is unlikely to have much of an impact. For many months now, mid-market houses have been turning down the eye-watering lending multiples banks have offered them, shocked at the banks belief that companies could support such debt. A reining in of lender's expectations was well overdue.

The unprecedented levels of debt at play in the market have helped to fuel its growth. As the market has grown and become more sophisticated, so competition for unquote's awards has heated up. This year, the entry process is taking place online with a closing date of 10 August. We look forward to seeing you at the awards ceremony on Wednesday 28 November at the Royal Horticultural Halls in London to celebrate the achievements of 2006/07 and unquote's fifteenth birthday.

Yours sincerely

Sarah Young

Editor, unquote"

Tel: +44 20 7004 7527

sarah.young@incisivemedia.com.