Xavier University announced last week the installation of the nation’s first pizza ATM. The $55,000 machine’s capacity is 300 medium-sized pies a day, with orders taking three minutes from refrigerator to cardboard box serving. Preparation for the dining hall staff consisted of “40 hours of training each from a French chef.”
Besides restoring our faith in the priorities of American higher education, this story echoed the dubious quality of deal flow being vended in the leveraged loan markets.
Just as the remaining swigs of your favorite Bordeaux are bound to include some bitter dregs, the August doldrums have saddled loan buyers with some cheesy fare. For one thing, smaller issuers are rampant. Companies with less than $10 million in ebitda are out seeking financing on terms that rival those of much larger borrowers.
This is particularly true of leverage. While 3-ish times senior debt to ebitda and 4-ish times total debt seem like reasonable metrics, an issuer that is stretching to reach double digits cash flow could easily drop back to mid or low single digits with the loss of a major customer, a production facility going off-line, or simply margin pressures.