Now raising intellectual capital

Leveraged loans making a comeback?


The $4 billion financing for Warner-Chilcott’s acquisition for P&G’s drug business is another sign of credit markets coming back to an even keel, but it’s not clear how much juice the banks have to keep the momentum going if they don’t find investors for the debt.

The Wall Street Journal reports that six banks, including JP Morgan and Bank of America, will provide the financing, $3 billion going to the acquisition and $1 billion to refinance existing Warner-Chilcott debt.

This would be the fourth-largest “leveraged loan” of 2009 in the U.S. and the largest globally for an acquisition, according to data provided by Dealogic. The last leveraged loan of this size for a deal in the U.S. was in April 2008, when Mars Inc. announced its planned purchase of Wrigley.

What’s not clear, however, is whether the banks are planning to hold on to the debt or pass it on to investors. Demand for leveraged loans has dried up since the collateralized debt obligation machine – which vacuumed up roughly 60% of leveraged loans- sputtered to a halt. If the banks aren’t re-selling the debt, I imagine there’s a limit to how much they can pony up for new deals, even with juicy fees.