Hector Sants, Head of the FSA, commented today that the days of cheap debt are numbered.

Fenton Burgin, debt advisory partner at Deloitte, responded: “Three different factors are at work in changing the current lending situation.  The credit crunch has resulted in fewer banks with capital to lend; a number of banks are effectively shut to new business at the present time.  The implementation of Basel capital requirements means that banks will have to allocate a higher degree of capital to loans, which has further reduced liquidity.  The final layer is that the CDO market has largely evaporated.   The net effect of all these factors is that pricing has moved upwards while leverage multiples have gone down.  Where a bank would lend £50 million on a deal six months ago, it will now lend £25 million.  We are on the cusp of a whole different model becoming the norm, which will be much more akin to leveraged loan structures in the US.  Ultimately company valuations will be likely to reduce in response to these structures.”

Ends

Notes for editors

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.