Blackstone, Centerbridge Look to Restart M&A Borrowing Binge

The U.S. presidential election may not be settled for days, or even weeks. But don’t expect buyout bankers to be sitting around.

Issuance of junk-rated bonds and loans -- including debt to finance risky leveraged acquisitions -- could resume in a matter of days, as the prospect of gridlock in Washington assuages fears of major regulatory overhauls, corporate tax hikes and rising borrowing costs.

Debt sales for Blackstone Group Inc.’s acquisition of Ancestry.com Inc. and Centerbridge Partners’s purchase of American Bath Group LLC are among offerings that could kick off in the coming weeks if the tone in credit markets remains positive, according to people with knowledge of the deals. Underwriters and issuers are carefully assessing the situation and plans are still tentative, the people said. Borrowers have largely stayed on the sidelines in recent days as they sidestepped election-related volatility.

Yields moved lower across fixed-income Wednesday as the seeming failure of Democrats to sweep Congress and the White House like many predicted triggered a rally in Treasuries as bets for major debt-financed stimulus were upended. A fear gauge of the credit market eased for a third day as investors priced in a divided government, which is expected to add pressure on the Federal Reserve to continue supporting markets while also lessening the likelihood of any dramatic shift in policy.

“The market so far appears to prefer a divided Congress to a lack of clarity on the presidential race,” Barclays Plc analysts Bradley Rogoff, Shobhit Gupta and Jigar Patel wrote in a Wednesday note to clients. “While there could be some volatility in the near term, we believe the longer-term outlook for credit has improved.”

Borrowing Binge

Companies and private equity firms that expect to complete acquisitions before the end of the year have limited windows to syndicate debt to investors, with only a few weeks on either side of the U.S. Thanksgiving holiday.

“If you look out, even if nothing major gets done in Washington, it doesn’t mean the economy can’t continue to heal,” said Greg Zappin, a portfolio manager at Penn Mutual Asset Management. “If I were a Treasurer I wouldn’t wait. With rates and spreads going down, I think credit markets are open.”

Other large deals in the pipeline that could be completed this year include a junk-debt offering for Inspire Brands Inc.’s $11.3 billion acquisition of Dunkin’ Brands Group Inc., and a debt sale of $1.85 billion for E.W. Scripps Co.’s purchase of ION Media Networks Inc., according to the people, who asked not to be identified because the discussions are private.

Blackstone plans to raise $2.7 billion between loans and bonds to finance the Ancestry.com acquisition, the people said. Representatives for Bank of America Corp. and Credit Suisse Group AG, which agreed to finance the deal, declined to comment, as did a spokesman for Blackstone.

Centerbridge is looking to sell a $900 million term loan and $400 million of high-yield bonds to finance its deal for American Bath, one of the people said. A group of seven banks led by Credit Suisse and Royal Bank of Canada is arranging the financing. Representatives for RBC and Centerbridge declined to comment.

A spokesperson for E.W. Scripps said the company is still in the process of determining the right debt mix for its financing, while Inspire Brands didn’t respond to a request for comment.

Read more: Leveraged loan calendar builds on M&A deal flow

Investors were generally receptive to new debt sales last month, though an uptick in volatility in the run-up to the election saw a handful of transactions get pulled. Buyers are expected to remain selective as the year draws to a close.

“The market is not going to buy just anything, but there’s still a lot of demand,” said Gershon Distenfeld, co-head of fixed income at AllianceBernstein. “There’s a secular need for yield.”

A new rush of deals would add to what has already been a record year for corporate bond supply. Yet even as credit markets appear to be in good shape, Distenfeld said he worries about the effect that inadequate fiscal stimulus may have on the broader economic recovery.

For markets, “conventional wisdom is that gridlock is good in government, but in this case we’re not so sure,” he said. “Monetary policy is not enough here.”

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