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Recap/Dividend Deals Continue to Pepper September Leveraged Loan Mart

Dividend loan activity picked up in September where it left off in August, with $2.4 billion of these credits launched to market so far this month (through Sept. 20), including $2.3 billion of institutional debt, according to LCD, an offering of S&P Global Market Intelligence.

While September volume trails the $4.9 billion ($4.1 billion institutional) recorded in all of August, a large chunk of last month’s activity comes via one deal, the jumbo $2.2 billion term loan for Harbor Freight Tools. By number of transactions, the two months are virtually on par—seven deals in August versus six in the first three weeks of September.

dividend 1To put September’s figure in perspective, the average dividend-related loan volume for the last 12 months is $2.2 billion, and last September saw just $700 million of supply, all of it pro rata.

Note that the data reflect loans whose sole purpose is to recapitalize the company, and excludes M&A transactions, such as the mid-September add-on for Avantor Performance Materials. The manufacturer of high-performance chemistries and materials issued a $665 million incremental B term loan to fund the merger with NuSil Technology, repaying existing NuSil debt and funding a dividend in the process.

For the quarter to date, $9.3 billion of loans funded a dividend, down from $14 billion in 2Q16 and $12.8 billion in 3Q15.

dividend 2The recent rush of dividend deals comes after a relatively dry month of July regarding opportunistic loan issuance, as the market recovered from the volatility that followed the Brexit vote. Aside from the $70 million add-on for Plaskolite mid-July, no other dividend-related loans launched until the last few days of the month.

Incorporating the high yield market, total leveraged finance issuance funding dividends was $13.2 billion in the quarter to Sept. 20, including $3.9 billion of bonds. While dividend loan issuance fell by 34% from the second quarter, high-yield bond issuance backing these deals rose by 25%, to a two-year high, on the back of two large Yankee borrowers, Ardagh Packaging and Ziggo.

Turning back to just loans, smaller borrowers have been tapping the market to extract dividends at a higher rate in the third quarter. Of the $9.3 billion raised to fund dividends, $1.6 billion, or 17%, came from deals sized at $350 million or less, up from just $870 million/6% in the second quarter. In fact, this is the highest volume of dividend recap loans for this size bucket since the third quarter of 2014. Recent examples include OrthoLite ($200 million), Mediware Information Systems ($300 million), and Floor & Décor (also $300 million).

dividend 3Of course, sponsors drive the dividend deal market. Private-equity backed borrowers accounted for roughly 70% of overall dividend-related loan volume in the quarter to Sept. 20, on par with the prior quarter and down from 85% in last year’s dividend peak. In absolute terms, sponsored dividend loan volume fell to $6.4 billion, from $10.3 billion in the second quarter.

dividend 4Not all of the money raised will go to the private equity owners, however, as most of these transactions also refinance existing debt. Looking at just the amount paid to sponsors, the leveraged loan market has financed $1.7 billion of dividends so far in the third quarter, down from $5.4 billion in the second quarter, which included a large payout for CHG Healthcare and dividend transaction for Avantor that wrapped in June, preceding the M&A loan that launched this month. These two deals alone returned over $1 billion to the sponsors. In contrast, the third quarter has seen a higher concentration of middle market deals, resulting in a lower total payout amount.

For the year to date, private equity funds extracted $7.1 billion of dividends via the loan market, down 31% from this time in 2015.

dividend 5On deals for which LCD tracked the original LBO, sponsors extracted 78% of their original capital contribution, on average, via a 2016 recap, up slightly from 74% in 2015. However, the average time between the initial buyout and recap extended to 3.5 years, almost a year longer than in 2015, though there is a great distribution within the 2016 sample. Harbortouch, for instance, returned to market three months after its initial buyout while LANDesk Software has a much longer history with its sponsor, having been acquired six years ago. The latter had deleveraged since its last trip to market in 2014 (also a recap transaction), and has bolstered EBITDA through growth and acquisition activity, according to LCD.

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In terms of leverage, this year’s crop of sponsored dividend transactions was on par with 2015 and 2014, with an average pro forma debt/EBITDA ratio of 5.1x. While this is more aggressive than the low 4x area seen in 2010 through 2012, it is still considerably shy of the record high of 5.4x set in 2007. – Marina Lukatsky

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Rocket Software Readies $880M Leveraged Loan Backing Dividend/Recap

Credit Suisse has scheduled a lender meeting for 9 a.m. EDT on Thursday to launch an $880 million loan package for Rocket Software that will finance a dividend recapitalization and an acquisition, according to sources. Commitments will be due by Thursday, Oct. 6.

The financing includes a $630 million, seven-year first-lien term loan and a $215 million, eight-year second-lien term loan, both covenant-lite. A $35 million revolver rounds out the loan package.

Price talk on the first-lien term loan is outlined at L+450–475, with a 1% LIBOR floor, offered at 99. That would indicate a yield to maturity of 5.80–6.07%. Lenders are offered six months of 101 soft call protection.

The second-lien is guided at L+925–950, with a 1% floor and an OID of 98. At that talk, the loan will yield roughly 11.06–11.33% to maturity. The call schedule on the second-lien is 102, 101, and par.

Proceeds will be used to refinance existing debt, fund a distribution, and finance an acquisition, sources said.

Rocket Software, a longtime portfolio company of Court Square Capital Partners, is a software development firm that builds and services enterprise infrastructure products for OEMs, networks and software companies and enterprises. Current corporate ratings are B/B2.  — Jon Hemingway

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Leslie’s Poolmart Readies $780M Leveraged Loan Backing Recap/Dividend

Sole arranger Nomura is launching with a lender meeting at 11 a.m. EDT tomorrow a $780 million, seven-year covenant-lite B term loan for Leslie’s Poolmart, according to sources.

leslies poolmartProceeds from the loan, along with $420 million of unsecured notes that will be placed privately and cash on hand, will be used to refinance the company’s outstanding debt as well as fund a dividend to shareholders.

The pool supplies company, which is controlled by CVC Capital Partners and Leonard Green & Partners, last tapped the loan market in November 2013 for a repricing of its term loan due October 2019, reducing the coupon to L+325, with a 1% LIBOR floor, from L+400, with a 1.25% floor. At the time of the 2013 repricing, there was $610.5 million outstanding under the TLB. — Kerry Kantin 

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Leveraged Loans: Amid Issuers’ Market, Dividend Deals Continue to Thrive

US dividend leveraged loan issuance 2

Lackluster M&A and LBO leveraged loan volume, along with the recent turnaround in market technicals, have helped propel a rebound in dividend/recapitalization loan activity in the second quarter of 2016.

With another two weeks to run until quarter-end, recap-related loan volume has climbed to its busiest level in a year, totaling $13.8 billion, according to LCD, a unit of S&P Global Market Intelligence.

The leveraged loan market hasn’t been this busy with recap deals since 2015’s second quarter, when $15.6 billion was spread across 35 transactions.

It’s no coincidence that the market for recaps is as strong as it was one year ago, as the technical backdrop is similar. This year, conditions started to improve for issuers in March and April, igniting a fresh wave of opportunistic activity in May. All told, demand outpaced supply in May by $12 billion, after a $3 billion surplus in April, marking the largest issuer-friendly imbalance since June 2015. – Chris Donnelly

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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Dividend Deals in Bloom as US Leveraged Loan Market Heats Up

dividend loan volume

Investor appetite in the U.S. leveraged loan market was on full display last month.

Credits backing dividends and recapitalizations, practically non-existent in the first quarter of the year, made a serious comeback in May, with $7.6 billion of activity during the month, up from $2.5 billion in April.

The May tally is the most for dividend activity since the $10.8 billion last July.

Dividend credits – through which an issuer takes on debt to fund a cash distribution to a private equity sponsor or shareholders – are a good gauge of how hot the leveraged loan market is: The greater the investor appetite for loan paper, the more willing lenders are to undertake transactions that can weaken a company’s balance sheet.

You can read more about how dividend loans work here, in LCD’s Loan Market Primer/Almanac.

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This chart is part of  LCD’s monthly Technicals Analysis, written by Kerry Kantin. It is available to LCD News subscribers at www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Cengage Seeks $1.59B Leveraged Loan for Dividend Recap

A Morgan Stanley–led arranger group this morning detailed the structure of a proposed dividend recapitalization financing for Cengage Learning.

The privately held higher education publisher is seeking to put in place a $1.59 billion B term loan, which launches via a bank meeting at 2 p.m. EDT, as well as $740 million of senior unsecured debt, proceeds of which would be used to refinance the approximately $2 billion of existing secured debt and fund a shareholder dividend, sources said. Additional details on the term loan will emerge at this afternoon’s bank meeting.

Morgan Stanley, Credit Suisse,  BMO Capital Markets, Citigroup,, Goldman Sachs, Wells Fargo, Deutsche Bank, and KKR Capital Markets are arranging the loan. Credit Suisse will remain administrative agent, sources noted.

B/B2 Cengage currently has in place a covenant-lite term loan due 2020 that is priced at L+600, with a 1% LIBOR floor, and had been quoted at 100/100.5 prior to Friday’s announcement of a lender meeting, sources said.

The originally $1.75 billion institutional loan was placed in early 2014 to back the company’s exit from Chapter 11, which handed its pre-petition first-lien lenders 100% of the equity in the reorganized company. The loan was upsized by $300 million in December 2014, proceeds of which were used to fund a shareholder dividend. — Kerry Kantin

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In Latest Dividend Deal for Leveraged Loan Market, Cengage Eyes $1.59B Credit Backing Recap

A Morgan Stanley–led arranger group this morning detailed the structure of a proposed dividend recapitalization financing for Cengage Learning.

The privately held higher education publisher is seeking to put in place a $1.59 billion B term loan, which launches via a bank meeting at 2 p.m. EDT, as well as $740 million of senior unsecured debt, proceeds of which would be used to refinance the approximately $2 billion of existing secured debt and fund a shareholder dividend, sources said. Additional details on the term loan will emerge at this afternoon’s bank meeting.

Morgan Stanley, Credit Suisse,  BMO Capital Markets, Citigroup,, Goldman Sachs, Wells Fargo, Deutsche Bank, and KKR Capital Markets are arranging the loan.

B/B2 Cengage currently has in place a covenant-lite term loan due 2020 that is priced at L+600, with a 1% LIBOR floor, and had been quoted at 100/100.5 prior to Friday’s announcement of a lender meeting, sources said.

The originally $1.75 billion institutional loan was placed in early 2014 to back the company’s exit from Chapter 11, which handed its pre-petition first-lien lenders 100% of the equity in the reorganized company. The loan was upsized by $300 million in December 2014, proceeds of which were used to fund a shareholder dividend. — Kerry Kantin

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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Another Dividend: CHG Healthcare Readies $990M Leveraged Loan Backing Recap

An arranger group led by Goldman Sachs has scheduled a lender meeting for CHG Healthcare Services on Thursday, May 19, at 10 a.m. EDT.

The issuer is raising a $990 million term loan B, while $300 million of second-lien notes have been privately placed, according to sources. Proceeds back a dividend recapitalization. Additional arrangers are expected to be named shortly.

The healthcare-staffing provider is controlled by Leonard Green & Partners and Ares Management.

CHG roughly a year ago wrapped a $225 million add-on to its covenant-lite first-lien term loan to repay second-lien term debt and fund a small dividend, sources noted. The add-on took first-lien outstandings to roughly $800 million.

The CHG deal is the latest in a relative spurt of recap/dividend loans lately. — Chris Donnelly
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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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As Investor Sentiment Picks Up, Refinancings/Recap Loans Re-Emerge

leveraged loan refi recap issuance

More evidence that tone is improving in the U.S. leveraged loan market: opportunistic refinancing – including credits backing dividends to private equity sponsors – began to pick up in April (and there’s been at least three recap deals in May, as well).

This chart was taken from LCD’s monthly U.S. Leveraged Loan Technicals analysis, by Kerry Kantin.

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LCD’s High Yield Market Primer/Almanac Updated with 3Q Charts

LCD’s online High Yield Bond Market Primer has been updated to include third-quarter 2015 and historical volume and trend charts.

The Primer can be found at HighYieldBond.com, LCD’s free website promoting the asset class. HighYieldBond.com features select stories from LCD news, weekly trends, stats, and analysis, along with recent job postings.

We’ll update the U.S. Primer charts regularly, and add more as the market dictates (new this time around: an historical look at Fallen Angels, courtesy S&P).

Charts included with this release of the Primer:

  • US High Yield Issuance – Historical
  • 2015 High Yield Issuance, by Purpose
  • High Yield LBO Issuance
  • Fallen Angels – Historical
  • Cash Flows to High Yield Funds, ETFs
  • PIK Toggle Issuance (or lack thereof)
  • Yield to Maturity: Historical, Recent

LCD’s Loan Market Primer and High Yield Bond Market Primer are some of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, they are widely used by originating banks, institutional investors, private equity shops, law firms and business schools worldwide.

Check them out, and please share them with anyone wanting an excellent round-up of or introduction to the leveraged finance market.