| NEW YORK, March 31
NEW YORK, March 31 First quarter US syndicated
lending of US$535bn was 50% higher than the first three months
of last year as companies raced to refinance existing loans to
lock in low borrowing costs before the Federal Reserve raises
Refinancing loans totalled US$409bn and accounted for three
quarters of all US first quarter lending as new money loans and,
notably, mergers and acquisitions (M&A) deals remained sparse
with companies awaiting specific details of President Trump’s
numerous tax and trade policy overhaul plans.
Overall volume was 8% lower than the US$583bn issued in the
fourth quarter of last year, although the share of refinancing
activity accelerated significantly.
Leveraged lending spiked on the refinancing spree, while
investment-grade activity sank to a four-year quarterly low on
the dearth of M&A deals.
Leveraged lending dominated first-quarter issuance, at
US$345bn, up from US$133bn in the same quarter a year ago and
the largest quarterly amount since the second quarter of 2013.
In contrast, investment-grade lending of US$140bn in the
first three months of this year was below US$164bn in the same
period last year and the smallest quarterly tally in four years.
The US$11bn issued for investment-grade M&A was the lowest
since the fourth quarter of 2012, and a far cry from the US$36bn
in the same quarter last year as uncertainty and high valuations
slammed the pace of transactions.
Investor demand for floating-rate assets remains robust
broadly, empowering leveraged companies to return to the market
to slice average yields to 13-year lows.
The administration’s failure to repeal and replace the
Affordable Care Act, commonly known as Obamacare, late in the
quarter raises concerns about other Trump agendas, and helped to
keep new-money lending subdued, bankers and investors said,
adding that they expect these conditions to persist.
“It doesn’t feel like volume is likely to change in a
material way,” a senior banker said. “The loan market has
largely been immune, but it’s been less than two weeks since
Obamacare didn’t get repealed,” he said. “That is the new
aspect, the uncertainty around tax policy is still out there but
there’s just more skepticism now about the ability to get some
of it passed.”
POLICY PARTICULARS PENDING
While the credit markets were robust in the first quarter
and liquidity was abundant as strong inflows continued, mounting
questions about Trump’s policies remain unanswered and the
markets have been marking time while awaiting details.
Retail investors have poured money into bank loan funds
every week except for one since early August 2016, creating a
positive market tone. Bank loan funds have pulled in almost
US$12bn so far this year, lifting total inflows during this
eight-month streak to US$22.5bn, according to Thomson Reuters
“For the most part, the first quarter was the sentiment
driven quarter, as no one expected that we would see new
policies implemented that fast,” said Jonathan DeSimone,
managing director at Bain Capital Credit.
Loan bankers and investors said they are now looking for
concrete developments on issues including US tax and trade
policies, filling the US Supreme Court vacancy and overseas
“The rally that we’ve had since (US) Election Day was
anticipating improving fundamentals,” DeSimone said. “While we
have solid fundamentals for the most part, the second quarter
will give us a little better sense of how and how much are we
going to build on those fundamentals for the rest of the year.”
Last year, there was a fourth-quarter rush of corporate
refinancing and buyouts, as markets rallied on the prospects of
looser financial regulation under the Trump administration.
After that burst of activity, total US syndicated lending
reached US$1.99trln, matching 2015 volume.
Demand for loans by quarter’s end was unrelenting, as
investors look for exposure to assets offering yields that could
float upward along with interest rates.
The Federal Reserve raised rates in March, quickly on the
heels of its December 2016 hike, and is signalling two more
increases this year.
Issuance of Collateralized Loan Obligation (CLO) funds, the
biggest buyers of leveraged loans, topped US$16bn in the first
quarter, double the amount issued at the same time last year,
LPC data showed.
(Reporting by Lynn Adler; Editing by Tessa Walsh)