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Leveraged Loan Issuance Keeps On as Investor Demand for Paper Grows

US leveraged finance issuance

Leveraged finance issuance in the U.S. is continuing its post-Labor Day surge with a substantial $28.4 billion in combined loan and high yield bond issuance last week, up from the already healthy $25.6 billion the previous week, according to LCD, an offering of S&P Global Market Intelligence.

Loans once again led the way, with $19.5 billion of new issuance via a whopping 38 deals, as investors remain hungry for paper.

“Arrangers continued to roll out new transactions into a market brimming with a mix of M&A, refinancing, and recap deals,” writes LCD’s Jon Hemingway, who covers the leveraged loan segment. “And the next two weeks should be busy as investors sort through this new business.”

Those M&A deals made some of the biggest splashes in market. Nexstar Broadcasting last week unveiled a $2.85 billion term loan to help finance the company’s $4.6 billion acquisition of Media General. Also, Inventive Health launched to syndication a $1.68 billion institutional loan backing the purchase of an equity stake in the company by PE concern Advent International.

 The sustained investor appetite is clear. U.S. loan funds last week saw another sizable cash inflow, of $306 million. That’s seven straight weeks investors have put money into the asset class, totaling $1.27 billion, according to Lipper.

Issuance in the high yield bond segment of the leveraged finance space totaled $8.9 billion last week, up slightly from the previous week. Many of those deals refinanced debt, though there was M&A as well, including a $500 million issue backing Onex Corp.’s LBO of Thomson Reuters IP&S (Camelot) and a $400 million deal backing PDC Energy’s acquisition of Kimmeridge Energy assets.  As well, Dutch internet concern Ziggo priced $2.65 billion of notes as part of a cross-border offering backing a recapitalization and dividend.

While issuance continued, high yield investors appeared to take a broader step backward last week, withdrawing a hefty $2.45 billion from the asset class, according to Lipper.

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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 Loan Market Off to Shotgun Start after Labor Day Hiatus

US leveraged finance issuance

The U.S. leveraged finance market returned from the Labor Day break ready to do business, with some $25.6 billion in new deals last week, the most since the middle of June, according to LCD, an offering of S&P Global Market Intelligence.

Leading the charge was the leveraged loan segment, which saw a healthy $17.4 billion in issuance via 23 credits. Of note, it’s not just issuers looking to take advantage of the increasingly low rates on offer to opportunistically refinance existing debt.

“Roughly half the deals last week backed LBOs and other M&A transactions,” according to LCD’s Jon Hemingway, in his weekly market analysis.

This will be a welcome development to institutional loan investors, of course, as the riskier M&A/LBO transactions offer higher spreads and fees than do plain-vanilla deals (such as refinancings). As well, they add new money to an asset class that is increasingly hungry for paper.

Indeed, investors last week poured a net $318 million into U.S. loan funds.That’s the largest cash inflow in 17 months.

With the recent activity, 2016 U.S. leveraged loan volume totaled $299 billion as of Sept. 9, down only 4.2% from the same period last year.

The high yield bond segment also returned from a two-week hiatus, pricing $8.2 billion in deals, the most since the week of June 10. Unlike the loan market, high yield issuers seemed focused on lowering borrowing costs.

“Opportunistic refinancing was the major theme this week as the market returned to life following the Labor Day break,” said LCD’s Jakema Lewis, in her weekly market wrap, published Sept. 8. “A significant portion of [offerings] this week has come from issuers looking to take out or repay existing debt.”

As with the loan market, investors returned to high yield funds last week,pumping a net $610 million into the asset class. That’s the fifth week out of the last six that the asset class has seen an inflow.

U.S. high yield issuance through Sept. 9 totaled $158.6 billion, down 26% from the same period a year ago, according to LCD.

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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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S&P: European Leveraged Finance Mart Shrugs Off Brexit Vote as Borrowers’ Market Persists

The European leveraged finance markets have held up extremely well since the shock of the U.K. electorate’s vote to leave the EU, according to a report published on Monday by S&P Global Ratings entitled ‘Borrower-Friendly Credit Conditions Endure As The European Leveraged Finance Market Shrugs Off Brexit Uncertainty’.

The high-yield bond market has come back to life after a three-week closure due to the referendum, says S&P. Meanwhile, the result of the Brexit vote barely disrupted the leveraged loan market, and the shortage of new issuance so far in 2016 is even giving some private equity sponsors an opportunity to take dividends, S&P adds.

S&P says much of the resilience in the capital markets can be attributed to stimulus measures such as the European Central Bank’s (ECB) Corporate Sector Purchase Programme (CSPP), and will be aided further by the recently announced corporate bond asset purchase scheme (CBPS) from the Bank of England.

European CLO issuance topped €5 billion in July. That's the most in one month during the '2.0 CLO' era.

European CLO issuance topped €5 billion in July. That’s the most in one month during the ‘2.0 CLO’ era.

Credit conditions for borrowers became much friendlier in the second quarter of 2016, with an uptick in loan repricing transactions, according to S&P, and the agency expects the European leveraged finance loan and bond markets to remain favourable for borrowers since the need for new funding — driven by mergers and acquisitions (M&A) activity — remains lower than investor demand. This is largely the result of trade buyers continuing to dominate the M&A playing field, making it tough for private equity sponsors to compete with them on valuations and thereby reducing the need for new finance, the report adds.

S&P goes on to say that while borrowers have taken this opportunity to refinance expensive subordinated debt with cheaper senior secured issuance, the result has been an increase in the amount of senior leverage in loan-funded transactions. This move is reflected in the reduction S&P has observed in the percentage of deals with ‘6’ recovery ratings and an increase in those with ‘2’, ‘3’, and ‘4’ recovery ratings this year.

Improvements in borrowing conditions could result in a new wave of refinancings, repricings, and maturity extensions, but this could also enable private equity sponsors to achieve less-stringent transaction terms, S&P warns. Companies’ leverage could also increase, S&P says, and although overall debt-to-EBITDA multiples haven’t risen in 2016, senior leverage has continued to climb to its highest level since 2007.

However, rather than the borrower-friendly conditions extending to companies further down the credit scale, S&P predicts investors will remain focused on issuers’ credit quality, and will continue to push back selectively on terms they deem too generous or risky.

The report is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280, or sending an e-mail to [email protected]. — Luke Millar

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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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US Leveraged Finance Issuance: Leveraged Loans vs High Yield Bonds

US leveraged finance issuance

U.S. leveraged finance issuance – leveraged loans and high yield bonds – totaled $21.5 billion last week, the most since the week of June 10.

Loans comprised the bulk of the total, with $14.2 billion in deals launched last week. High yield bond issuance totaled $7.3 billion.

Year to date (through Aug. 5), U.S. leveraged loan issuance totals $272 billion, down some 11% from this point in 2015, according to LCD, an offering of S&P Global Market Intelligence.

U.S. high yield bond issuance through Aug. 5 totals $140 billion, down a hefty 30% from the same period in 2015.  – Tim Cross

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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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S&P: 107 Global Corporate Defaults so far in 2016

defaults by region

The global corporate default tally has grown to 107 as of yesterday, compared to 68 at this point in 2015, according to S&P Global Fixed Income Research. The last time the corporate default count was this high? In 2009, when there were a whopping 194.

The bulk of the 2016 defaults – 72 – come from the U.S., according to S&P. – Staff reports

This analysis is part of S&P Global Fixed Income’s weekly default analysis, which also details default by sector, a list/xls of 2016 defaults, and other analysis. It is available to S&P Global Credit Portal subscribers here.

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Despite Healthy Return, US Leveraged Loans Outpace Only Treasuries in July

returns by asset class

Leveraged loans were in the middle of the pack with respect to July returns, outperforming the 10-year Treasury yield but underperforming equities, high-yield bonds, and investment-grade bonds, according to LCD, an offering of S&P Global Market Intelligence.

The loan returns stats are per the S&P/LSTA Index – Staff reports

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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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Diamond Resorts Rolls out $600M High Yield Bond Offering Backing Apollo LBO

Diamond Resorts is offering $600 million of eight-year (non-call three) unsecured notes, sources say. Bookrunners on the deal are RBC Capital Markets (left), Barclays, and Jefferies.

A roadshow for the offering will run Aug. 1–4, sources noted. The proceeds will be used to back Apollo Management’s $2.2 billion purchase of Diamond Resorts. Apollo in late June agreed to acquire the company for $30.25 per share. At the time the deal was announced, the company said closing was expected over the next few months.

Take note, the issuer is also shopping a $1.2 billion seven-year term loan B and a $100 million revolver to fund the buyout. Price talk for the loan has been set at L+500, with a 1% LIBOR floor and a 99 offer price.

Expected ratings for the notes are CCC+/Caa1. On July 25, S&P Global Ratings lowered its corporate credit rating for Diamond Resorts to B from B+, noting the incremental leverage and the company’s financial sponsor ownership.

Diamond Resorts International operates a network of more than 420 vacation destinations located in 35 countries throughout the continental U.S., Hawaii, Canada, Mexico, the Caribbean, South America, Central America, Europe, Asia, Australasia, and Africa. — Staff reports

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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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S&P: Growth in Global Credit, Leverage to Continue. Then: Slow Burn or ‘Crexit’?

corporate debt levels

S&P Global sees global corporate credit demand growing over the next few years, to $62 trillion by the end of the decade, including some $24 trillion in “new” debt (as opposed to refinancings).

At the same time, borrower credit quality is weakening , thanks largely to “monetary expansion” in various countries.

This combination of factors leads S&P to a pair of scenarios, with the assumption that a credit correction of some kind is inevitable:

  • A slow burn, where weak companies fall over gradually (this is the base case assumption)
  • “Crexit”: A system-wide credit contraction, prompted by a series of economic/political shocks. Brexit, for instance … – Tim Cross

 

The full report, Global Corporate Credit: Despite An Inevitable Credit Correction, Debt Demand Will Swell To $62 Trillion Through 2020, is available to S&P Global Credit Portal Subscribers. It was written by Terry Chan, Diego Ocampo, David Tesher, and Paul Watters. It details:

  • Global corporate credit demand, by country
  • New corporate credit demand
  • Corporate credit growth cycle
  • Debt/GDP vs Credit growth
  • Financial risk trends of global corporate sample
  • Distribution of FFO/debt risk categories, by country/industry

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US Leveraged Loan Issuance Rebounds, High Yield Bonds Emerge as Post-Brexit Markets Heat up

There is life in the new-issue U.S. leveraged finance market for the first time since the U.K. Brexit vote, thanks largely to a rapidly accelerating leveraged loan segment that is seeing opportunistic issuers come off the sidelines.

U.S. syndicated loan issuance last week totaled a relatively hearty $14.3 billion, up noticeably from $3.4 billion the previous week, according to LCD, an offering of S&P Global Market Intelligence.

US leveraged finance issuance“Summer’s here, and a technically driven loan market is heating up,” writes LCD’s Chris Donnelly, in his weekly market wrap-up. “Accounts that fretted about repricing activity in recent weeks saw a slew of mark-to-market deals and refinancings, all poised to capture investor demand.”

Indeed, there was a handful of sizeable credits last week, including a $2.2 billion refinancing from New Zealand-based packaging concern Reynolds Group and a $1.8 billion loan backing Revlon’s acquisition of Elizabeth Arden.

There was also a jumbo $4.25 billion loan backing the bankruptcy exit/DIP loan refinancing of Texas Competitive Electric Holdings, the largest leveraged loan bankruptcy ever (as TXU).

Year to date, U.S. leveraged loan issuance now totals $239 billion, compared to $247 billion at this point in 2015.

Along with increased issuance, U.S. loan funds last week saw their first inflow of investor cash in a month, according to Lipper.

The U.S. high yield bond market was less active, though it too saw its best week of issuance since the Brexit vote, logging $3.9 billion in deals, according to LCD. More might be in store.

“Investors have a significant amount of money to put to work on the heels of a five-week slowdown, big inflows to the asset class, and large coupon-payment dates having passed in June,” says Matthew Fuller, who covers the high yield bond market for LCD.

About those inflows: They totaled a whopping $4.35 billion last week, the second-largest weekly sum ever, according to Lipper.

Year to date U.S. high yield issuance totals $124 billion, down significantly from the $189 billion at this point last year.

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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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UFC Sets Leveraged Loan, High Yield Bond Backing Private Equity Buy of Co.

Financing for the $4 billion purchase of professional mixed martial arts organization UFC by WME IMG, Silver Lake Partners, KKR, and MSD Capital will include a $1.3 billion, seven-year covenant-lite term loan B and $500 million of unsecured notes, sources said. As expected, UFC will be financed on a stand-alone basis and will not result in a refinancing of talent agency WME IMG’s debt, sources said.

UFC logoGoldman Sachs will be left lead on the loan deal and is expected to commence pre-marketing of the transaction shortly, while Deutsche Bank will be left lead on the bond deal, sources said. As noted earlier, the financing package has been underwritten by Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, and KKR Capital Markets.

WME IMG will also serve as UFC’s operating partner. Silver Lake Partners and KKR will join WME IMG as new strategic investors, along with MSD Capital, L.P. and MSD Partners, L.P., which will provide preferred equity financing, sources said.

UFC produces more than 40 live events annually and is the largest Pay-Per-View event provider in the world, broadcast in over 156 countries and territories, to nearly 1.1 billion television households worldwide, in 29 different languages. UFC continues to capitalize on digital distribution platforms via its wholly owned subscription over-the-top service, FIGHT PASS, delivering exclusive live events, thousands of fights on demand, and original content to viewers around the globe.

UFC parent Zuffa in 2014 repriced its then $475 million TLB due 2020 to L+300, with a 0.75% LIBOR floor. — Chris Donnelly

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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.