Kronos

Bull markets produce innovation. The latest novelty in U.S. leveraged loans is a pre-capitalization or pre-cap financing, which allows companies to keep existing financing and capital structures in place if they are sold.Pre-cap loans reappeared in 2012 after debuting in 2005. Six were completed in the U.S. last year and they look set to remain a feature of 2013.The structure is good for private equity buyers and sellers which save paying a new set of fees. Change of control provisions are not triggered, which usually prompt an expensive refinancing.The portable pre-cap structure is less popular with investors, which are wary of losing control over who they are lending to.Pre-caps remove a happy dilemma for private equity firms - whether to refinance and take a dividend from a portfolio company or wait and sell the business later - by allowing them to do both."It's very compelling for a private equity sponsor who has been in an asset for a while, who wants to monetize but is not ready ...

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