LBO refi needs could overwhelm demand, warns Goldman Sachs

The supply of new high yield debt could overwhelm demand this year, warns Goldman Sachs in the latest issue of its US credit strategy report, the Credit Line. It says that although the market has been driven by a strong demand-dominated technical this year, the need of companies to refinance LBO loans taken out between 2005 and 2007 could soon gain the upper hand.

And debt investors should not expect much of a helping hand from the equity market. Goldman sees little scope for an increase in the number of LBO companies getting IPOs away. Those equity issues that are done are likely to be among companies concentrated in a few defensive sectors.

With refinancing prospects remaining hard, expect to see a re-emergence of last year’s trend for debt amendments and distressed exchanges among low-quality issuers, say the report.