London: Debt used to fund buyouts is lagging behind the rest of the high-yield market as a slump in demand for initial public offerings (IPO) thwarts efforts by private-equity firms to pare borrowings.

Bonds issued by Blackstone Group LP's Travelport Ltd fell 3.1 per cent on February 11 after the world's largest leveraged buyout-fund (LBO) manager postponed a share sale for the provider of travel-reservation systems. New Look Group Ltd loans declined after the fashion retailer owned by Permira Advisers LLP and Apax Partners Worldwide LLP put a $1 billion (Dh3.67 billion) stock sale on hold.

At least 15 IPOs were postponed or withdrawn this year, bolstering concern private-equity firms won't be able to raise equity and slash debt from some of the $2 trillion of deals made since 2004. Junk-rated companies face "huge uncertainties" as they try to refinance more than $800 billion of borrowings in the next five years, according to Moody's Investors Service.

"The IPO cancellations are a significant negative for debt investors," said Andrew Wilmont, who helps oversee $5 billion of speculative-grade debt as a London-based investment manager with Axa Investment Managers UK Ltd.

Loans of companies rated below investment grade and owned by private-equity sponsors have returned 1.83 per cent this year through February 16, below the 2.34 per cent gain for similarly-rated debt of borrowers without ties to buyout firms, according to Standard & Poor's Leveraged Commentary and Data. Leveraged loans and junk bonds are rated below Baa3 by Moody's and less than BBB- by S&P.

Yield spreads

The extra yield investors demand to own company bonds instead of government debt held at 171 basis points on Wednesday, or 1.71 percentage points, according to Bank of America Merrill Lynch's Global Broad Market Corporate index. While that's 10 basis points more than a month ago, the so-called spread compares with 449 basis points a year ago.

The difference on US junk-rated debt narrowed 22 basis points to 680 basis points on Wednesday, the biggest drop since September 16, 2009, when spreads tightened 26 basis points.

Elsewhere in credit markets, loans from Six Flags Inc and IMS Health Inc rose in their first day of trading, said investors familiar with the transactions. The Federal Reserve said its top officials last month debated how and when to shrink the central bank's $2.26 trillion balance sheet, with some pushing to start selling assets in the "near future."

Duane Reade Holdings Inc's $300 million of 11.75 per cent bonds due in 2015 gained 17.1 cents on the dollar on Wednesday, then fell 0.06 cent to $124 on Thursday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Walgreen Co, the biggest US drugstore chain, agreed to buy Duane Reade from affiliates of Oak Hill Capital Partners for $618 million to expand in metropolitan New York.

Spain's 5 billion euros (Dh25 billion) of new 15-year benchmark bonds rose in the first day of trading. The 4.65 per cent securities due in July 2025 increased 0.49, or 4.9 euros per 1,000-euro face amount, to a bid price of 100.32, according to Royal Bank of Scotland Group Plc prices on Bloomberg. The yield, which moves inversely to the bond price, fell three basis points to 4.64 per cent.

Dubai World

Credit-default swaps on Dubai rose one basis point to 608, according to CMA DataVision. A basis point equals $1,000 a year on a contract protecting $10 million of debt.

Dubai World will present a proposal to creditors in March to restructure about $22 billion of debt after its advisers complete valuing the assets of the state-owned company, a person close to the Dubai government said. Dubai World, one of three main state-owned business groups, said in November it would seek to delay repaying debt until at least May 30.