Reuters logo
LPC: US leveraged loans ready for strong second half
August 25, 2017 / 2:27 PM / 3 months ago

LPC: US leveraged loans ready for strong second half

NEW YORK, Aug 25 (Reuters) - The sizzling US leveraged loan market is expected to maintain its breakneck pace in the second half and potentially set new volume records despite lower merger and acquisition activity as the strength of investor demand continues to see off concerns over mounting macroeconomic and geopolitical risks.

Robust demand for floating-rate assets in a rising interest rate environment has pushed leveraged loan volume to US$874.7bn in the year to date, 77.5% higher than US$492.9bn raised at the same time last year.

“If we keep the same levels, we’re going to have one of the highest years ever,” said a senior leveraged finance banker.

Several M&A deals announced before the September 4 Labor Day holiday are expected to hit the market soon, including US$1.6bn of financing backing internet security company DigiCert’s purchase of Symantec’s web certification business. UBS is leading the loan financing with Credit Suisse, Jefferies, Goldman Sachs and Macquarie Group.

Pharmacy manager PharMerica Corp also arranged US$1.1bn of commitments to back its buyout by private equity firm KKR and Co, too. Goldman Sachs will lead the first-lien portion while Morgan Stanley will lead the second-lien piece.

Although buyout activity has strengthened in the third quarter, it has not been enough to meet overwhelming demand from loan buyers, including Collateralized Loan Obligation (CLO) funds, loan funds and foreign investors.

Investors are favoring loans in the technology, healthcare, industrials and packaging sectors but the picture is mixed as other sectors including retail and energy remain under pressure, which is reflected in low secondary prices.

Sponsors have lined up more than US$20bn of financing to back leveraged buyouts in the third quarter so far, which is 231.5% higher than the same period in 2016 when US$8.9bn of buyout financing priced, according to Thomson Reuters LPC data.

Most of this volume has come as issuers take advantage of strong market conditions to extend maturities by refinancing or simply repricing debt lower in the primary market as secondary prices climbed, emphasizing strong investor appetite.

Bankers are watchful of possible pitfalls from political concerns such as the debt ceiling negotiations or heightened tensions with North Korea, but said that it is mainly the current strength of the US economy that is reassuring investors to put their money into the asset class. OFF THE SHELVES

The extraordinary levels of investor demand for buyout deals that hit the market in the run up to Labor Day kept the market unusually busy in the August holiday period, bankers and investors said.

Leveraged loans, especially large deals, can often take two weeks to go through syndication, but deals flew through the market in August, as pharmaceutical research services provider PAREXEL International Corp’s buyout loan to back its acquisitions by Pamplona Capital showed.

The issuer launched a US$2.065bn seven-year term loan on August 7 and wrapped up pricing just three days later on August 10. The deal priced at 300bp over Libor, at the tight end of 300bp-325bp pricing guidance. Bank of America Merrill Lynch led the transaction.

In another display of insatiable demand, office supplies retailer Staples Inc’s proposed US$2.4bn term loan backing Sycamore Partners’ buyout of the company’s delivery business was oversubscribed by the time the deal launched on August 2. As a result, the issuer was able to increase the size of the term loan to US$2.9bn and lower pricing to 400bp over Libor from 425bp over Libor. UBS led the deal.

Bankers said that they expect issuers to be able to continue to access favorable borrowing conditions in the run up to year end, absent any market shocks. Private equity firms remain particularly well positioned to exploit market conditions with opportunistic deals.

“The sponsors are very sophisticated,” the banker said. “They have their own terms. They’re always going to extract every single dollar and every single term that they can.” (Reporting by Jonathan Schwarzberg; Editing By Michelle Sierra and Tessa Walsh)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below