Deals Show Everybody Loves a Bargain

How does Freescale(FSL), a cyclically sensitive semiconductor company financing a leveraged buyout, sell bonds at a lower yield than a similar offering just one week ago from HCA(HCA), a huge hospital company with a higher credit rating?

Either HCA's bankers screwed up and mispriced the deal, or there is just that much cash chasing high-yield assets -- most likely both. The silver lining for all involved is that the private-equity firms involved buttered up corporate bond investors by giving them some new, high-quality bonds that were priced relatively cheaply (a bond's price moves in opposition to its yield). The buttering is helpful to these sponsors as more giant deals and possible follow-on financing are on the way.

"There is a price of admission," says Brian Hessel, managing partner at Stonegate Capital Management. Indeed, these private equity firms' names recur on the announcements of nearly every deal. "If the private-equity firms disappoint high-yield investors, they will have a harder time later getting good execution on deals," says Hessel, among the potential investors for said deals. "The high-yield debt market for LBO'd companies is "like a huge raw material that they need access to, to go forward."

Investors can already anticipate some big debt financing deals out of Thursday's announcement that Clear Channel Communications(CCU) agreed to be bought for $18.7 billion by a private equity consortium including Thomas H. Lee Partners and Bain Capital. Indeed, the high-yield bond market and the leveraged loan market are going to have to maintain healthy appetites (we're talking Thanksgiving dinner) for jumbo bond deals for a long time.