In This Issue: Booming M&A Drive Global Credit Quality Slide: Hyperliquidity, stoked by the heightened appetite for risk in global credit markets, appears ready to continue through 2007. With many borrowers, investors, and private-equity players growing increasingly comfortable with aggressive leverage, the current financial environment is powering a wave of leveraged M&A that likely will again reach record highs. Still, there will be a downside: Standard & Poor's expects many of these types of transactions to have a deleterious effect on credit quality.The European Leveraged Finance Market Swaggers On Into 2007: The wave of liquidity and the building pipeline of new LBOs as well as recycled deals at the start of 2007 continue to swamp the growing disquiet about deteriorating credit quality. The borrowers' dominant position has enabled them to significantly dilute the traditional checks and balances of the "private" loan market, weakening lenders' rights and avoiding the scrutiny and greater transparency provided by a relative value-oriented, "public" capital market. High-Technology M&A Set To Remain Strong In U.S. For 2007; Activity In Europe May Wane: M&A in the high-technology industry in the U.S. this year will likely rival last year's blistering pace as companies seek to buy product lines, while a surge in Europe in 2006 looks set to be followed by a somewhat more measured period. Companies have consolidated in efforts to either simply gain scale or to broaden their product suites. Airline Consolidation Will Propel Moderate M&A Activity For U.S. Aerospace & Defense: Significant private-equity interest in U.S. airlines and the aerospace & defense industry likely will drive at least a moderate level of M&A this year, with the airline sector potentially the focus of the major M&A activity. With airline ratings already low, the effects of acquisitions will depend on the financing used and how persuasive the case is for savings resulting from a combination. M&A Activity In U.S. Health Care Industry Looks Set To Pick Up, As Population Ages: M&A in the U.S. health care industry this year looks set to exceed last year's increased pace, as broader product offerings and economies of scale become more important amid demand from an aging population supported by third-party coverage through employers and government programs. High Private Equity Interest Looks Set To Drive M&A Activity In U.S., European Telecom Industry: Consolidation in Europe's telecom industry likely will continue at a strong pace this year, with U.S. companies expected to show at least moderate activity, as a flood of private-equity money drives deals. Low borrowing costs and ample liquidity in the capital markets are adding to this boom. M&A Among European Capital Goods Companies Look Set To Grow In 2007 With Bolt-On Acquisitions: Bolt-on acquisitions pose little problem for the industry's larger players, but large deals could have negative implications for credit. This is especially true if shareholder friendly initiatives to increase dividends or do share buybacks are pursued at the same time. China, Australia Could Push Asia-Pacific M&A Activity To Another Year Of Record Highs: M&A in Asia-Pacific is hurtling ahead at full speed, and continued private-equity interest in China and Australia likely will push activity to fresh records this year. In 2006, deal volumes in the region-excluding Japan-surged more than 50% to US$385.4 billion, smashing the previous record. M&A: How Boards Can Help-Or Hurt- Creditors And Investors: A merger or an acquisition can often put a company's governance structure to the test. As an added pressure, Standard & Poor's has noticed a growing number of activist investors are making use of "good governance" initiatives to further aims that may not always coincide with the interests of other investors, including creditors. Equity Insight: Public Or Private, M&A Is All About Value: M&A has always been more art than science. These deals require not just the vision to combine two concerns, but the ability to work two managements into one, shed operations that no longer fit, and mold the combined company into more than the sum of its new parts. When done right, it helps companies expand their business via the acquired company. Projected Global M&A Activity By Sector: Theses tables were compiled from a survey of Standard & Poor's analysts from around the world, gauging expectations for M&A activity in various sectors and industries. Analysts were asked to rate current consolidation in their areas, recent M&A levels, projected levels, drivers of activity, and the effects of credit quality. | 
