EY Capital Confidence Barometer April 2014 - October 2014
Credit available to fuel larger deals
Over several Barometers, companies have indicated that credit is broadly available — but now executives indicate a greater interest in putting debt to work.
Companies’ growing willingness to add leverage to their balance sheets suggests deal activity increases when confidence and deal appetites converge. Deal volumes will remain subdued in the near term. However, with debt financing increasingly available, larger deals will be on the agenda as companies use debt to finance high-value strategic moves.
Confidence in global credit availability at an all-time high: Respondents’ confidence in credit availability at a global level is at its highest level ever in the Barometer. We are seeing a significant increase in availability of credit to the corporate sector coupled with overall stabilization in credit conditions. Growing and persistent confidence in the availability of financing — particularly for larger, well-rated firms — provides a favorable platform for selective dealmaking.
Use of leverage expected to rise: Debt-to-capital ratios have largely remained stable over the last year, but we may see shifts over the next 12 months. With interest rates expected to increase, there is a rush of companies positioning to lock in longer term financing at current low rates.
Significant increase in use of debt to finance acquisitions: As executives seek to maximize returns, they anticipate a notable increase in usage of debt as a percentage of purchase price. Despite record cash balances, the currently advantageous terms on debt financing are spurring a shift from cash to debt.