| NEW YORK
NEW YORK Oct 6 A lack of new loan issuance and
heavy demand for leveraged loans has created opportunities for
issuers with strong credit profiles to increase the size of new
refinancings by huge sums, extend maturities and lower borrowing
Low M&A volume means banks are looking for ways to boost
fees before the end of the year. With interest rates remaining
low, companies such as pharmaceutical investment firm Royalty
Pharma and advertising tracking firm Nielsen are taking
advantage of investor demand by doubling or tripling the size of
Overall US leveraged loan volume of US$555bn was down 11% in
the first nine months of the year compared to the same time last
year. Of this, just US$203bn was tied to merger and acquisition
activity, enabling companies to be more aggressive in pricing
for the available loans investors are competing to buy.
"Companies that people know and like are getting wildly
oversubscribed," said a senior investment banker.
Loan funds have seen strong inflows as Libor has ticked up
to above 80bp. With many leveraged loans having Libor floors of
75bp, this has effectively made loans floating rate again. In a
rising interest rate environment, a Libor spread that can go up
when rates hike is an attractive quality to both loan funds and
high yield funds.
"I think we'll have a lot of opportunistic refinancing," the
As the attractiveness of leveraged loans grows, loan buyers
have been clawing to put anything on their books that comes to
the market, even the traditionally unpopular refinancing and
repricing deals that can eat into spreads. This has worked out
well for borrowers such as Royalty Pharma and Nielsen, which
have extended the maturity profile on their loans at low rates.
Royalty Pharma more than tripled the size of its refinancing
to US$3.4bn from US$705m, while Nielsen almost quadrupled its
refinancing loan to US$1.9bn from US$500m. In both cases, the
companies will be able to extend their maturity profile with the
additional demand from investors.
The strong appetite has not been arbitrary as investors are
still disciplined and issuers with a checkered past or without a
strong borrowing history are not getting signed up without
paying a premium.
Redbox widened pricing on a US$400m term loan backing its
buyout by private equity firm Apollo Global Management to 750bp
over Libor with a 1% floor and a discount of 97 cents on the
dollar versus guidance in the 725bp-750bp over Libor range with
a discount of 98.5 cent.
Video conferencing equipment maker Polycom was also forced
to price its US$750m term loan at a discount of 96 cents on the
dollar with the coupon widening to 650bp over Libor with a 1%
floor from guidance of 575bp over Libor.
"We've had other markets where good deals go well and things
with any noise don't go at all. The market right now is healthy
enough to get deals done, but it's not so overheated that harder
deals are pricing with no discrimination," the banker said.
"They're getting priced, but they're getting priced wider.
There's still some choosiness. I wouldn't put us in a bubble
context at all."
(Reporting by Jonathan Schwarzberg; Editing by Michelle Sierra
and Lynn Adler)