Will junk slump slow buyout binge?

May 6, 2011, 10:05 PM UTC

Private equity firms have agreed to more than $100 billion of deals in 2011, with the news that Access Industries is buying Warner Music Group for $3.3 billion. That is more than twice the global private equity volume at this time last year, according to Thomson Reuters.

The majority of that activity has been in the U.S., with Asia placing a distant second.

But this isn’t to say everything is wine and roses. There’s a bit of nervousness building over the future of high-yield bond issuance, which is the engine that juices leveraged buyout returns.

U.S. high-yield issuance totaled just $23.3 billion in April, according to Standard & Poor’s LDC. That’s a 23.36% drop from $30.4 billion in March issuance, and also a bit below the 2011 monthly average of $25.3 billion (which includes the April figure!).

Moreover, high-yield mutual funds and ETFs experienced retail cash outflows for the final two full weeks of April, before rebounding during the most recent week (according to Lipper FMI). And then there was that whole episode in which Lee Enterprises pulled a $1.1 billion offering due to an apparent lack of interest.

To be sure, both high-yield and overall leveraged loan issuance are way up over 2010 levels. And the above examples could just be meaningless blips. So consider it something to watch, while PE firms invest their next $100 billion…