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LBO Risks Gathering

01 November 2018 by lberuti

In August, ARNC ( Arconic Inc ) announced it was considering selling its building and construction systems unit which makes facades, windows and framing products. On Tuesday, when it reported better than expected quarterly profit and raised its full-year earnings forecast, it said the sale process was under way and had drawn robust interest. Under such circumstances, one would probably expect ARNC’s risk premium to tighten. But during the same earning meeting, the management also announced that the scope of the strategy and portfolio review initiated in February was being extended and its scope broadened “to address additional scenarios”. That gave weight to rumours that private equity firms are circling the company, with Apollo Global Management supposedly about to make an offer in excess of $11bln for the aluminium products maker. With LBO risks gathering and leverage potentially about to be propelled higher, investors in fact pushed ARNC’s 5-year risk premium above 400bps for the first time since 2016.