The Acquisition and Leveraged Finance Review: Editor's Preface

The covid-19 pandemic has dramatically altered all aspects of life. The acquisition and leverage finance industry has been no exception. M&A activity has slowed down, and hence the leverage financing activity as well. Having said that, there are clearly some defensive industries that have shown resilience to the present crisis (pharma, bio sanitary, food and TMT, for instance).

Uncertainty is affecting the capacity of market participants to agree on valuations, creating gaps between the expectations from the seller and the buyer. On top of that, one of the biggest obstacles for the acquisition and leverage finance sector has been that private equity houses have been forced to shift focus onto already existing portfolios. Likewise, emergency measures taken by governments worldwide to address hardships caused by covid-19 (such as state aid measures or public restrictions regarding foreign direct investment) have also materially impacted the landscape of the acquisition and leverage finance sector, adding a layer of complexity to the structuring of deals.

Notwithstanding the above, it is still fair to say that the world is becoming more global, more knowledge-based, and increasingly competitive. Liquidity remains strong and a low interest rate environment is bound to remain for years, leading to a higher demand for yield. Acquisition and leverage finance structures continue to be more and more complex, hybrid and global. For instance, financial covenant innovation in the leverage finance industry has increased more over the past three years than during the entire previous decade. Furthermore, there is a clear convergence between high yield structures and loan structures in the world's most sophisticated financial markets. These latest trends are quickly (and successfully) making their way around the globe but sometimes clashing with domestic rules and practices. Therefore, careful and thoughtful monitoring of domestic circumstances is still a must.

The acquisition and leverage finance industry has proven its strength and robustness and we all believe that it will adapt to this new momentum.

Many thanks to all the participants in this publication, and particularly to Law Business Research.

We all hope that this publication will help market players navigate these turbulent times.

Fernando Colomina
Latham & Watkins
Madrid, Spain
November 2020

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