| NEW YORK
NEW YORK Dec 29 A fourth-quarter rush of
corporate buyouts and refinancing, as markets rallied on
prospects of looser financial regulations under a Trump
administration, pulled 2016 US syndicated lending volume up to
match the prior year's pace.
Expectations of friendlier business policies stoked
leveraged buyout (LBO) and mergers and acquisition (M&A)
transactions in the year's final weeks, a shift bankers agree
will carry into 2017.
In the uncertain and volatile three quarters prior to the US
election, total lending volume was running at a four-year low.
By year end, syndicated lending had recovered, reaching
US$1.99trln, and equaling 2015 volume, according to Thomson
Reuters LPC data.
Many companies repriced existing debt, extending maturities
and locking in rock-bottom interest rates.
Overall lending fell 6% in 2015 from the previous year,
dinged by sinking oil prices, uncertain Federal Reserve policy
and a preference for less risky assets in tumultuous markets.
In recent weeks, investment-grade and leveraged lending
leaped along with demand for short- and floating-rate assets.
The Federal Reserve hiked rates in December for the first
time in a year and signaled three more increases next year.
After almost a decade of historically low interest rates, this
builds the case for buying loans that are pegged to rates that
will be rising in coming months, investors and analysts said.
At the same time, the Republican president-elect and
Republican-controlled Congress are widely seen loosening
regulatory constraints and opening lending spigots further,
"In the LBO space, 2017 will be, if not a record year, a top
two or three year," said Brendan Dillon, co-head of global
leveraged finance at UBS. "There's a lot of pent-up dealflow."
Under the incoming administration, with philosophies that
differ significantly from the previous eight years, "there will
be a realignment of winners and losers in certain sectors and
that will create a lot of LBO activity," he said.
Total leveraged lending to highly indebted companies ended
the year up 11.7% at about US$875bn, after ramping up in the
fourth quarter. As M&A also picked up, investment-grade lending
finished around US$861bn, about 1.4% below last year's tally.
Technology and healthcare deals dominated, led by
multibillion dollar loans for AT&T Inc's takeover of Time Warner
Inc and Dell's purchase of EMC Corp as well as Abbott
Laboratories' separate loans for proposed purchases of St. Jude
Medical and Alere Inc.
Roughly two-thirds of this year's syndicated loans were
"It would be great to see new issuers come to market - true
new-money, new issuance that could soak up some of that cash
that's on the sidelines," said Adam Brown, senior portfolio
manager at Macquarie Group.
If new issuance lags current robust demand, available loans
in the secondary market will become even more expensive.
The average bid in the SMi100, gauging the 100 most widely
held leveraged loans, rallied to end the year at almost 99, up
from a four-year low of 95.3 in February.
Investors poured into the loan market based on Trump's
pledges of loosening restrictions on lenders.
"Theoretically, less rules should make it easier and more
profitable to lend money out," said Pat Keon, Thomson Reuters
Lipper senior research analyst. Also, "if the Fed continues to
raise rates in 2017, as they have indicated they plan to, these
funds will yield more."
Bank loan funds pulled in almost US$7bn in the six weeks
after the election. This influx lifted net inflows to US$5.8bn
this year, after US$21.6bn of net outflows last year, according
Average leveraged loan total returns approaching 9% are the
highest in four years, propelled by the secondary loan price
Demand from Collateralized Loan Obligation (CLO) funds, the
biggest buyers of leveraged loans, should also underpin the
market. Banks forecast CLO issuance of US$50bn to US$70bn,
versus about US$72bn this year, as managers adjust to rules that
kicked in on December 24 forcing them to hold a portion of their
Parsing the victors from the victims of potentially sweeping
US policy changes will be paramount, investors and bankers said.
So far, investors are biased toward sectors including
pharmaceuticals and commodities that would benefit from Trump's
vows to relax restrictive regulations.
Autos and technology, in contrast, are among sectors that
rely heavily on international business and could be hurt by
altered or eliminated trade agreements.
"We're not making major portfolio changes based on
assumptions about what the new administration will actually be
able to get done," said Brown.
Macquarie has, however, further reduced its exposure to the
hospital sector since the election.
"Whether the Affordable Care Act is repealed or reformed,
there will be changes and our view is that any changes to that
act will be negative for hospitals," he said.
While sector winners and losers are debated, the consensus
is that dealflow will mount broadly as the economy grows.
"It's a combination of record dry powder from financial
sponsors, very healthy inflows, and strong 2016 performance from
leveraged loan and high yield accounts," Dillon said.
(Reporting by Lynn Adler; Editing By Leela Parker Deo and Jon