Evercore's Chief Sees Junk Markets Opening, Deals Resumingby
Evercore CEO says markets won't be shut to junk debt for long
Private equity deals more difficult amid market rout, CEO says
Market volatility that’s discouraged banks from lending to risky companies will soon wane, and junk debt will become more attractive to investors, according to Evercore Partners Inc. Chief Executive Officer Ralph Schlosstein.
“You have a period where there’s been capital withdrawal amid the investor community in these higher yielding sectors,” Schlosstein, 64, said Wednesday in a conference call with analysts. “Maybe I’m just an old goat, but we’ve seen this movie a fair number of times before, and periods of ‘the market being shut’ just don’t last that long.”
Investment banks such as Evercore and Moelis & Co. have been preparing for an increase in energy mergers and restructurings after plunging fuel prices disrupted the industry. However, debt markets have dried up, and the fluctuations in oil have been so extreme that it’s been difficult for potential buyers to know the right time to make a transaction, veteran dealmaker Ken Moelis said last month.
High-yield debt has plunged into the deepest slump since the 2008 financial crisis. The credit rout has particularly stalled potential private-equity deals, since buyout firms rely so much on leverage, Schlosstein said. Still, he said low equity valuations are hard to resist for long.
“Once the clouds clear a little bit on the economic outlook, and once balance sheets get cleaned up a little bit, the financial institutions are in the business of putting loans on their books,” he said. “They’ll do that again just as they did after the financial crisis.”
Evercore climbed 4.3 percent to $45.05 at 4 p.m., narrowing its decline for this year to about 17 percent.