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CVC’s Briggs Says Lack of Mezzanine, Retail Funds Hurt Buyouts

Hugh Briggs, the London-based managing director of finance at private-equity firm CVC Capital Partners Ltd., comments on the funding challenges sponsor-led buyouts face in Europe.

He made the remarks at the Euromoney Seminars Annual Syndicated Loans Conference in London yesterday.

On difficulties in raising mezzanine loans for buyouts:

“One of the things that’s surprised us is the continued inability to get deals done with mezzanine debt. That hasn’t been for want of appetite on the behalf of the mezzanine community, it’s come from a stalemate between the banks and mezzanine providers on how you deal with inter-creditor issues.

“One of the ways we’ve been trying to cut the Gordian knot is to say the inter-creditor agreement should be the same as a standard high-yield deal: if banks are happy to give it to bondholders why shouldn’t they be happy to give it to mezz holders? It would open another asset class for us to borrow in that would be advantageous to everyone in the buyout market.”

On absence of retail participation because of European Union restrictions on who can invest:

“In the U.S. there’s a huge amount of retail fund inflow that’s helping to provide a significant amount of liquidity,” while in Europe, “legislation basically makes it impossible for people to raise similar retail funds.”

On leveraged loan returns versus equities:

“We looked at CVC’s returns over the last two funds versus public equities. If you’d been invested in public equities as a retail investor you’d have made a gross return over the last nine years of 1.4 percent, before any fees. If you’d been a retail investor in a leveraged loan fund in the U.S. or Europe you’d have made about 6 percent.

“Also, the risk-adjusted return is infinitely better as you are in the best place in the capital structure instead of the worst. Why legislators want to prevent people from investing in a high-yielding, safer asset class remains beyond us.”

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