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Everybody Thought It Was Done... But It's Not

27 July 2017 by lberuti

In still near zero interest rate environment, bankers and their clients have been busy mulling M&A deals. But if potentially cheap financing is certainly a favorable environment, it does not mean it is available to everyone. Large leveraged buyouts, in which financial sponsors raise a large amount of debt to finance an acquisition, have become increasingly rare since the 2008 financial crisis led to tighter rules on lending at banks. It was announced today that BMC Software Inc ended talks to acquire CA Inc after struggling to obtain bank financing for the deal despite the high free cash-flows CA derives from its mainframe business. With no other credible buyer in sight, it was not very good news for CA's shareholders who the value of the roughly $13bln company plunge roughly 11%. It was a different story for holders of CA's debt. The company's 5-year risk premium jumped almost 200bps back in June when the deal was first rumored. Today, it came half the way back and closed105bps tighter at 148bps.