It wasn't so much that ­Carlyle Group is going through with the first -- and possibly the only for a while -- multibillion buyout since the U.S. debt downgrade. It's that at a $3.9 billion purchase price and a $1.76 billion equity contribution from Carlyle and Hellman & Friedman LLC the LBO of Wilmington, N.C.-based contract researcher Pharmaceutical Product Development Inc. was the third-largest and had the highest debt multiple of 2011 year to date, according to ­Standard & Poor's Leveraged Commentary & Data.

A filing detailing the financing commitment reveals that Credit Suisse Group, J.P. Morgan Chase & Co., Goldman, Sachs & Co. and UBS committed to $2.2 billion in debt on Oct. 2, leveraging PPD at 7.5 times Ebitda.

Although pricing information is not available, one knowledgeable private equity investor says, "The financing [caps] on that deal were 300 to 400 basis points above what it was three months ago." And flex provisions, which give banks wiggle room to change pricing if markets shift, have become dramatic due to bank fears of losses. As a result, several professionals working on pending buyouts say it doesn't make sense for sponsors to do deals right now. "Due to unattractive economics for issuers based on recent comparable levels, the pipeline going forward will likely continue to be spotty," writes Babson Capital Management LLC's weekly update.

The only way it's worthwhile is to get the right price for a quality company. With PPD, the 29.6% premium over its closing price before the deal was announced is only 3.5% over its August high. And with stock prices down, buyers are itching to tackle other take-private opportunities. Because of perceived affordability, multiple merger agreements are circulating, says Weil, Gotshal & Manges LLP corporate partner Michael Weisser. Only lousy debt markets and hefty reverse breakup fees give pause. With a $251.8 million reverse termination fee, PPD buyers had to be very certain about the deal's viability. If debt financing is available, the seller can go to court and force sponsors to close, notes Weisser. This means until financing prices come down, deals such as PPD will remain exceptions.

Buyouts this year prior to PPD garnered commitments before terms became onerous. Their debt packages, most recently for wound-care provider Kinetic Concepts Inc. and medical software developer Emdeon Inc., have struggled to get priced and distributed.

While banks are moving most of the risk off their books after taking hits -- losses on leveraged loans this year could be as much as $470 million across the industry, with about a quarter attributed to Bank of America Merrill Lynch--the borrowing terms have been priced at their highest possible points, often with steep discounts that make it more expensive to borrow.

Banks moved $400 million on Kinetic's planned $2.6 billion term loan to a second-lien high-yield bond issue. The package now consists of a $2.2 billion seven-year term loan and a $200 million five-year revolver. They came to market at LIBOR plus 575 basis points, with a 1.25% floor, a 95.5-96 offer price and premiums of 2% and 1% if redeemed within years one and two, respectively.

By comparison, Kohlberg Kravis Roberts & Co. LP's April buyout of Pfizer Inc. unit Capsugel included a term loan priced at LIBOR plus 400 basis points and was issued close to par with fewer call restrictions. Then Kinetic pulled $900 million of unsecured bonds out of its $2.55 billion notes offering; the rest of the secured notes will come to market Oct. 14. As a result, on Oct. 7 Moody's Investors Service rated that proposed tranche a high credit risk at Caa1 and pegged losses in a default at 92%.

This means that banks providing bridge financing -- Credit Suisse, BAML, Morgan Stanley and Royal Bank of Canada -- will still be looking to off­load credit backing those notes. Emdeon had an easier time; its $1.2 billion term loan for Blackstone Capital Partners' purchase of a controlling stake was oversubscribed in its Oct. 6 launch. But it came at a pricey LIBOR plus 550-575 with a 1.25% ­LIBOR floor and a 96-97 offer price -- and, according to LCD, is receiving $375 million from Goldman's mezzanine fund.

"Deals haven't fizzled, but rather bankers, sellers and buyers alike are keeping deals on ice until the debt markets recover and sponsors can borrow on terms that make sense," says Weisser. n

Max Frumes covers leveraged finance
for The Deal magazine