Manatt Partner Discusses Initial Public Offerings Surge with American Banker

“Increase in IPOs Leading to More Debt Paydowns”
American Banker

July 6, 2011 – Manatt’s Craig D. Miller, a co-chair of the firm’s Financial Services & Banking Practice Group, discussed with American Banker what companies have been doing with new capital gained through initial public offerings (IPOs), the first sale of stock by a private company to the public.

In the article, American Banker reports a recent surge in IPO activity and a trend among businesses to use capital for deleveraging. Though banks have normally benefited from an increase in IPOs, industry observers are noticing that companies with new capital are choosing to pay off debts rather than seek loans from banks.

One company, Bankrate, which went public in June after raising $300 million from its IPO, improved its credit rating after telling investors it would pay off its debt with the IPO proceeds.

"When someone is looking at a prospective investment, it's nice to know they are not going into a company with debt," said Miller, who also notices companies adding credit lines with IPO proceeds. "We definitely see these companies paying off debt, but that doesn't mean they're ending their commercial banking relationship forever," he said.

Miller noted a client that recently switched banks to receive a lower rate on a $20 million line of credit even though the company has no immediate plans to tap the line.

"Most company shareholders don't see [credit] lines as a negative, they just see it as another source of liquidity," Miller said. "With today's low interest rate environment, you will inevitably see companies tap the debt markets."