M&A Fueling Active Credit Markets In 2015, KPMG Survey

NEW YORK, March 11, 2015 /PRNewswire/ -- According to a survey of nearly 450 finance executives by KPMG LLP, the audit, tax and advisory firm, the credit markets will continue to be active in the first half of 2015, driven mostly by corporate M&A.

Thirty eight percent of respondents cited M&A as the top catalyst for credit market activity, followed by refinancings (26 percent), private equity funded buyouts (21 percent) and restructurings, which was up 15 percent from July 2014.

The survey also found a precipitous drop in executives expecting to raise capital in the near term, with 37 percent indicating that their business will not be raising capital this year, compared with only 16 percent expressing the same sentiment when surveyed six months earlier. Those that will be raising capital will do so by securing a bank loan to refinance (21 percent), incurring debt with an acquisition (12 percent) and raising growth equity to expand their businesses (12 percent).

"Before the M&A market started to heat up in 2014, many companies pursued opportunistic deals because of high levels of available liquidity and favorable market conditions. Although such conditions persist, the market is now riper for M&A with so many of the opportunistic deals, especially repricings, having already filtered through the credit market," said Joe Rodgers, managing director of KPMG Corporate Finance LLC.  "It's also not surprising that respondents predicted an increase in restructuring activity in anticipation of rising interest rates."

Macroeconomic Forces
The biggest risk to the credit environment is expected to be geopolitical instability, cited by 37 percent of respondents, followed by 18 percent who identified concerns that demand for yield will create a bubble-like environment.

"In 2014, the increased violence in the Middle East, crisis in the Ukraine and resulting sanctions on Russia didn't have an impact on the risk appetite of investors," said Brian Hughes, leader for KPMG's Private Markets Group. "However, continued geopolitical volatility in these regions could adversely impact the broader global markets and should be closely watched in 2015." 

On the regulatory front, feedback was mixed regarding whether increasing bank regulations will impact bank relationships, with 41 percent indicating they believed they will, and 36 percent indicating that they were unsure.

During the first half of 2015, respondents expect interest rates to stay the same, according to 46 percent, followed by 43 percent who expect rates to increase.

"Any interest rate increases this year should not be material enough to impact balance sheets and deal making," said Rodgers. "With banks having adjusted to new regulatory requirements and pulling back on leveraged loans, companies can turn to alternate sources of capital if they seek more leverage to get their deals done. Although typically this is accompanied by a higher cost of capital, it is offset by more flexible deal terms."

Causing the greatest impact on leveraged loans are expected to rising rates due to a tightening of monetary policy or stronger U.S. economy (31 percent), followed by loan issuance in connection with increasing M&A activity (23 percent), and capital providers driving pricing lower versus deteriorating credit standards (16 percent).

About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 162,000 professionals, including more than 9,000 partners, in 155 countries. 

SOURCE KPMG LLP

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