NEW YORK (LPC) - Lending to blue chip US companies for mergers and acquisitions (M&A) has hit a record half year total of US$129bn, as banks continue to extend financing while pulling in record fee income for arranging the loans.
US corporations are buying growth, and remain confident that the debt markets are receptive to large short-term loans backing huge acquisitions that will ultimately be refinanced with longer-term bonds.
“Conditions remain very conducive for financing investment grade M&A transactions – sufficient liquidity in capital markets, strong interest from banks to support their customers, banks having capital to support bridges and term loan funding needs of the acquirers,” said Art de Pena, managing director and head of distribution, trading & agency for MUFG’s syndications group.
With several weeks remaining in the first half, the US$129bn of loans backing investment grade M&A which have been completed or are in process already beats the previous high of around US$122bn in the second half of last year, according to Thomson Reuters LPC data.
Bolstered by a recent wave of mega-mergers, the pace is crushing the roughly US$89bn of loans lined up in the first half of 2017, which was the prior record for any first six months of a year.
A US$32bn equivalent (£23bn) loan package backing US cable operator Comcast Corp’s offer for the stake in European pay-TV group Sky Plc that it doesn’t already own, and a US$26.7bn bridge loan supporting US health insurer Cigna Corp’s purchase of pharmacy benefit manager Express Scripts lead the pack of this year’s high-grade M&A loan financings.
The US tax overhaul that sliced corporate tax rates this year has helped to open the door for dealmaking, bankers said, as bank competition for commercial and industrial loans intensifies.
“This time last year there was a lot of uncertainty around tax reform,” said a senior banker. “Now there’s more confidence in the ability to identify a target and accurately analyze the upside for that acquisition, what it means for cash flow and future business strategy.”
The door is likely to stay wide open if the Justice Department finds in favor of the long-awaited US$85bn mash-up between AT&T and Time Warner in an expected ruling by June 12.
The US stance on AT&T’s purchase of Time Warner is a big piece of the M&A puzzle when it comes to competition. In the regulatory queue is the US$26bn planned T-Mobile acquisition of rival Sprint Corp, which could be impacted by the AT&T/Time Warner decision.
Earlier in the year, a US$100bn bridge loan for Broadcom – the biggest loan ever assembled – was canceled after President Trump blocked the chipmaker’s takeover of Qualcomm over national security concerns.
Banks were eager to put the money back to work, and are reaping the benefits of other mergers as the year progresses.
The US$476m in fees earned on underwriting investment grade M&A loans is on the brink of beating last year’s second half tally of US$494m, and breaking the record for any half, according to Freeman Consulting Services.
Freeman counts fees only when loans close, so the US$38bn T-Mobile/Sprint financing has not yet been included.
“After a pause in large-scale dealmaking around the 2016 election, corporate tax cuts and strong profitability are driving now another wave of mega-M&A,” said Jeff Nassof, a director at Freeman Consulting. “Acquirers currently have the inclination and ability to pull off transformational deals that need to be supported with debt financing.”
Reporting by Lynn Adler; Editing by Tessa Walsh and Michelle Sierra