The Treasurer magazine and The Royal Bank of Scotland have combined for the third time to produce a series of articles, with the current series focusing on “Maximising Shareholder Value”.
- The first article reviews the themes and trends in financing and corporate capital structures and suggests how treasurers can actively manage their company’s capital structure to maximise shareholder value.
- The second article looks at how financing structures are adapting to reflect new market conditions
- The final article suggests an action plan for corporate treasurers in getting the best out of the markets in the current challenging economic conditions.
Have recent market conditions changed attitudes to risk and capital structure? Over the course of the last few months the world’s credit markets have experienced significant problems. Problems that began in the US subprime mortgage market and fed through to the broader market as participants began questioning how structured credit as a whole is analysed and priced, culminating in a liquidity crunch with, for a while, uncertainty over who the credible counterparties were.
Private equity (PE) fundraising increased every year between 2002 and 2007 and exceeded $100bn in 2006. This, and the availability of cheap credit, has provided significant capacity for PE, which has consequently played an active role in the M&A markets over the last few years. In fact, seven of the eight largest leveraged buy-out (LBO) transactions occurred during the 18 months preceding the credit crunch of August 2007. Since August, however, the leveraged markets have become more challenging, especially for larger transactions exceeding €1.0-€2.0bn. The fact that leveraged loans are trading well below par in the secondary market means that banks are finding it difficult to underwrite large primary transactions. At the same time, the mezzanine market appears less constrained given the increased returns available to mezzanine investors after a long period of margin compression driven by oversupply of senior debt.
In the third of its series of articles, the RBS Debt Capital Markets team reviews themes and trends in financing and corporate capital structure, suggesting some considerations for treasurers and chief financial officers (CFOs) operating in a changing, and challenging, financial environment.
