Underwriters pulled a $1.55 billion bond offering by U.S. Foodservice, the nation's second-largest food distributor. The company also postponed plans to sell $2 billion in loans to fund the deal, according to people familiar with the matter. For now, the banks involved in underwriting the deal will have to lend the $3.6 billion directly to U.S. Foodservice, which is being bought from Royal Ahold NV of the Netherlands.
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While the banks will try to resell the loans and bonds to investors in the year ahead, the FoodService deal could reset the equilibrium of the buyout business at large, giving banks more clout in financing negotiations while also putting strains on the amount of money available for deals. One person involved in the deal described it as a "healthy correction" for an overheated market.
Big buyouts in the past few years have been fueled by bond and loan investors who have been willing to accept skimpy interest rates and easy terms on the companies borrowing from them. But in a wave of midsize debt deals that hit the market in the past week, investors have shoved deals back to underwriters, demanding better terms.
From Bloomberg:
The yen rose the most in 10 weeks against the euro as investors pared holdings of emerging-market bonds and stocks funded by loans in the Japanese currency.
Japan's yen gained against all 16 of the most-active currencies, extending its rally after Finance Minister Koji Omi yesterday stressed the risk of one-way foreign-exchange bets. Stocks in Europe and Asia declined as investors shunned riskier assets, prompting an unwinding of the so-called carry trade.
``The combination of a very clear change of stance towards the currency markets within Japan's Ministry of Finance along with continued losses for global equity markets is taking its toll,'' said Simon Derrick, chief currency strategist at Bank of New York in London. ``Yen-funded carry trades are experiencing a sharp unwinding.''
Very little has been written about the actual terms in the wave of M&A that has occurred over the last few years. However, the WSJ makes it clear that financing terms were more liberal than deals from previous waves of M&A. This easing of terms is one of the end results of low interest rates. Low interest rates make investors hungry for better returns. It also makes investors more willing to take on more risk to get those returns. AS a result, they accept more liberal financing terms.
The yen carry trade was considered a lay-up investment for the last few years. The trade was simple. Borrow money in Japan where interest rates were ultra-cheap and lend the money in a market where interest rates were higher. Now it looks as thought that trade is going away as well.
If both of these developments continue then a primary driver of the US markets over recent months -- high powered M&A deals -- may diminish in importance. That in turn could effect a possible recovery from the recent sell-off in the US markets.
