RESEARCH SHOWS THAT 63% OF THE FTSE-250 FINANCE DIRECTORS ARE UNHAPPY WITH THEIR DEBT BEING TRADED

80% OF FTSE FINANCE DIRECTORS FEEL CUT OUT OF THE M&A ENVIRONMENT BY PRIVATE EQUITY FIRMS

18 July 2005, London- New research from Close Brothers Corporate Finance (Close Brothers) focusing on the secondary debt market  reveals that although 50% of FTSE-250 finance directors know that their debt is being traded, 63% of them were categorical that they viewed this as a negative development.

The research also showed that whilst a significant number of respondents thought that relationship banking remained important to them, close to 70% now see debt as a commodity, indicating they will go wherever the most competitive pricing takes them.

Commenting on the research findings, Jonathan Trower, a Managing Director of the European Debt Advisory Group at Close Brothers, said:

"Many finance directors have clearly recognised the growing prevalence of leading UK financial institutions to trade their debt and view this as a negative development.  Debt trading in UK mid-market companies has only been happening for the past two years, so finance directors are still adjusting to the trend."

The research also shows that despite the FTSE-250 recently reaching an all time high , 88% of FTSE-250 finance directors feel they are at a material disadvantage when it comes to pursuing M&A activity, given the ability of private equity backed or privately owned companies to sustain much higher levels of debt, without the requirements of being a listed company.

Contrary to recent market-commentator speculation that the current high levels of liquidity in the UK debt markets is a bubble, 82% of respondents disagree and are firmly of the view that the trend will continue.

Jonathan Trower commented:

"This is a very revealing insight into what the UK mid-market thinks about current liquidity in the debt markets.  The fact that PLCs feel they are being disadvantaged, whilst at the same time feeling this is a long-term trend, shows that this could be the new landscape in which these companies have to compete for some time to come."

The research also revealed that UK mid-market PLC feels debt rather than equity is the preferred source of capital – the mid-market is happy to run with historically high levels of debt – of the FTSE 250 companies questioned there was an average of 4.1X EBITDA with some companies prepared to take that to 8X EBITDA.  This is a stark contrast to the average net debt to EBITDA ratio in 2000, which the Close Brothers' UK mid-cap Gearing Report that year showed as 1.75X.

Jonathan Trower commented:

"These multiples show that mid-market companies are reacting to the threat posed by private equity companies; but with low retail sales, a slower housing market and a low manufacturing output environment, all the warning signs are there that companies with high levels of debt will find it increasingly difficult to meet expectations.  They are stuck between a rock and a hard place."

For further information please contact:

Close Brothers

Justin Clark +44 (0)20 7655 3784