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With Help from Refinitiv, LBO Leveraged Loan Issuance tops 2017 Levels

lbo loan issuance

Big-ticket LBOs are driving the U.S. leveraged loan market in 2018.

So far this year $90 billion of credits backing buyouts have been launched or completed in the syndicated loan market, nearly as much as in all of 2017, according to LCD.

The 2018 LBO loan figure has received a huge boost of late via a spate of jumbo transactions. Chief among them is Refinitiv, which includes $6.5 billion of institutional loan debt backing Blackstone’s $17 billion takeover of Thomson Reuter’s financial data and technology unit (the PE firm is acquiring a 55% stake). The loan portion of the deal was targeted for $5.5 billion, but was increased due to investor demand.

Tellingly, the high yield bond portion of the Refinitiv financing was decreased at the same time, illustrating the clear preference that speculative-grade debt investors have for loans this year, compared to bonds

As is often the case, LBO loans and other M&A deals are in keen demand from institutional investors as these credits generally offer higher pricing and richer returns than do non-M&A credits, because of their increased leverage and often-aggressive terms.

Of course, with the chance for higher returns comes more risk. This is especially the case today, as most credits completed in market now are covenant-lite, meaning they are less restrictive for the issuer, and consequently offer investors and lenders less protection during the life of the loan.

Indeed, of the $90 billion in LBO loans so far this year, $78 billion is cov-lite. This tracks with the overall U.S. leveraged loan asset class, which now totals some $1.1 trillion, according to the S&P/LSTA Index. Roughly 80% of those outstandings are cov-lite. – Staff reports

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Web.com Wraps $1.5B Leveraged Loan Backing LBO by Siris Capital

Web.com Group completed the covenant-lite term loan financing for its buyout via a Morgan Stanley–led arranger group, according to sources. The $1.095 billion first-lien term loan due 2025 (L+375, 0% LIBOR floor) priced at an OID of 99.75, and the $420 million second-lien term loan due 2026 (L+775, 0% floor) came at 99.25. Both priced tight to talk, and the first-lien was increased by $15 million to replace revolver draws. Financing also includes a $100 million, five-year revolver with a springing leverage covenant. Proceeds are being used to finance the take-private buyout of the company by Siris Capital in a roughly $2 billion deal. Web.com Group is a global provider of internet services and online-marketing services for small and midsize businesses. Terms:

Borrower Web.com Group
Issue $1.095 billion first-lien term loan
UoP LBO
Spread L+375
LIBOR floor 0.00%
Price 99.75
Tenor 7-year
YTM 6.25%
Four-year yield 6.31%
Call protection 101 soft call for 6 months
Corporate ratings B/B3
Facility ratings B+/B2
Recovery rating 2
Financial covenants None
Arrangers MS/RBC/Macq
Admin agent MS
Px Talk L+400-425/0%/99-99.5
Sponsor Siris Capital
Notes Upsized by $15 million.
Borrower Web.com Group
Issue $420 million second-lien term loan
UoP LBO
Spread L+775
LIBOR floor 0.00%
Price 99.25
Tenor 8-year
YTM 10.61%
Four-year yield 10.79%
Call protection 102, 101 hard calls
Corporate ratings B/B3
Facility ratings CCC+/Caa2
Recovery rating 6
Financial covenants None
Arrangers MS/RBC/Macq
Admin agent MS
Px Talk L+800-825/0%/98.5-99
Sponsor Siris Capital
Notes

 

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M&A Activity Sweeps through Global Leveraged Loan Market

With the global surge in mergers and acquisition activity so far in 2018, M&A has been a big driver of leveraged loan activity. This is especially true in Europe, where M&A accounts for nearly three-quarters of all leveraged loan issuance, according to LCD.

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Amid M&A Frenzy, LBO Leveraged Loans Surge to Record Size

europe LBO loan

Propelled by the ongoing M&A binge and mountains of cash for private equity shops to spend, leveraged loans backing LBOs in Europe have shot to record size in 2018.

These credits, which traditionally have been arranged by large banks, then syndicated to institutional investors such as collateralized loan obligations vehicles (CLOs), pension funds, and other institutional investors, have grown to an average of €689 million so far this year, according to LCD. That’s a big leap from €447 million in 2017.

Why the increase?

These mega-buyout financings are being driven by a combination of factors, including readily available and cheap debt (despite a recent widening of spreads charged to borrowers), a record amount of dry powder raised by private equity firms, strong corporate earnings, and big assets coming up for sale — especially through divestments of non-core businesses from large corporates, as well as break-ups as a result of increased shareholder activism, PE firms say.

Private equity players add that large buyouts are particularly attractive in the current market, which has become tougher due to fiercer competition, including more sovereign wealth funds and pension funds coming in, and rising valuations. Indeed, on a rolling three-month basis, average purchase-price multiples reached 11.3x in March this year, according to LCD. That’s the most since the financial crisis (though it has dipped since March).

This story is abstracted from an LCD News story by Isabell Witt.

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Amid Surge of Deals, Risk/Reward on US Leveraged Loans Hits 6-Year High

Long-suffering investors in the $1 trillion U.S. leveraged loan market saw some relief in 2018’s second quarter, as the reward for participating in LBO loans, vs the risk incurred, hit its highest level in six years, according to LCD.

For this analysis LCD employed yield per unit of leverage (YPL) to gauge risk/reward, and looks only at loans backing LBOs.

Specifically, in the second quarter, U.S. loan investors saw an average 126 bps of YPL on LBO loans offered in the syndications market, up sharply from 95 bps in the first quarter. To calculate YPL, the yield to maturity of a credit is divided by the deal’s total leverage (debt/EBITDA).

It’s important to note that this increase was almost entirely a result of higher credit spreads in the market, as opposed to an increase in LIBOR, on which U.S. loan pricing is based (three-month LIBOR climbed steeply in Q1, but largely held steady in Q2).

The brighter risk/reward scenario for U.S. loan investors came as cash inflows from retail players – via loan funds and ETFs – slowed, compared to heavy net deposits earlier in the year. The relative slowdown, combined with a hefty $25 billion of LBO loans entering the market in May and June, had investors in the rare position of calling some shots during the syndications process in July, forcing increasing numbers of issuers to sweeten pricing and/or alter terms. Hence the notable increase in YPL (and spread per leverage).

After a slow start, however, loan issuance in the latter half of July has picked up, with issuer-friendly price flexes resuming, so it will be interesting to see how the risk/reward profile in the leveraged loan market shifts going forward. – Staff reports

This story was abstracted from a longer piece of analysis by LCD’s Marina Lukatsky.

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Amid Deal Frenzy, M&A Leveraged Loan Issuance Shoots to Record High

M&A was the catalyst behind a jump in institutional leveraged loan issuance in the second quarter, which totaled $144 billion as of June 26, eclipsing the $129 billion in 1Q18, according to LCD. That would make the past three months the busiest for institutional issuance since the record $171 million in 1Q17, and the third-highest quarterly figure ever.

Throw in pro rata activity—revolving credits and amortizing term loans—and total volume this quarter is $198 billion, the second-highest amount on record, behind the $209 billion in 1Q17.

mna loan issuance

About that M&A: Institutional leveraged loan issuance for this purpose hit a record $83.9 billion in the second quarter, or 58% of all U.S. institutional issuance. The last time M&A came close to the 2Q total was the second quarter of 2007, at $82.9 billion. – Jon Hemingway

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Asurian Floats $3.75B Leveraged Loan Backing Dividend to Private Equity Sponsors

In one of the largest credits of its kind, a Bank of America Merrill Lynch–led arranger group has launched a $3.75 billion covenant-lite term loan package for Asurion that will be used to fund a return of capital to shareholders, according to sources. Commitments are due by noon EDT on Wed., June 27.

Dividend deals such as Asurion are seen as opportunistic issuance in the U.S. leveraged loan market, meaning issuers – or their private equity owners – take advantage of investor demand to originate credits, the proceeds of which are returned to the owners. The U.S. leveraged loan market has been red hot of late as investors crowd the floating-rate asset class thanks to ongoing and expected interest rate hikes.

The loan package includes a new $2.25 billion B-7 term loan due November 2024 and a $1.5 billion add-on to the company’s second-lien term loan due August 2025.

Price talk on the first-lien is L+300, with a 0% LIBOR floor and an OID of 99.5. That indicates a yield to maturity of about 5.55%. Lenders are offered six months of 101 soft call protection.

The second-lien guidance is L+675, with a 0% floor and an OID of 99–99.5. At talk, the yield ranges from 9.51–9.61%. Hard calls will be reset to 102 and 101.

A consent fee of 50 bps is offered to first-lien lenders and of 75 bps to second-lien lenders.

The arranger group includes Morgan Stanley, Goldman Sachs, Barclays, Credit Suisse, and Deutsche Bank.

Agencies affirmed Asurion at B+/B1, with stable outlooks, following the announcement of the share repurchase. First-lien facility ratings are B+/Ba3, with a 3 recovery rating from S&P Global Ratings. The second-lien is rated B–/B3, with a 6 recovery rating.

The issuer will also increase its revolver to $230 million and extend maturity by one year to 2023, agencies note.

Existing debt at Asurion includes its $2.6 billion TLB-4 due August 2022 and $3.2 billion TLB-6 due November 2023. Those existing term loans are priced at L+275, with a 0% floor. The original $1.8 billion second-lien term loan was placed a year ago to refinance the existing facility.

Asurion is a provider of wireless handset insurance products. The company is backed by Madison Dearborn, Berkshire Partners, Providence Equity Partners, and Welsh, Carson, Anderson & Stowe, which acquired to business in 2007, as well as other investors, including The Canadian Pension Plan Investment Board. — Jon Hemingway/ Richard Kellerhals

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Private Equity Shops Bulk Up on Leveraged Loan Add-On Deals

add-on deals

Private equity–backed companies looking to grow through acquisitions have been an active lot in the U.S. leveraged loan market this year.

Institutional loan issuance backing sponsored add-ons that fund M&A has surged to an all-time high for the first five months of 2018 (this data includes all deals launched through June 5).

At $38.6 billion, this add-on volume is 44% higher than the comparable YTD total in 2017, which itself represented the previous peak during this observation period. Despite the year-over year rise, it’s worth noting that the full-year 2017 total was a record $64.4 billion of sponsored add-on issuance, 58% of which was booked between June and December.

In addition to high LBO supply, escalating purchase price multiples are another reason for rising add-on M&A. PE firms are increasingly focused on growing existing portfolio companies via synergistic tuck-in acquisitions that can help reduce the average cost of a transaction over time. – Jon Hemingway

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Leveraged Loan Issuance Gains Steam in Europe, thanks to LBOs

europe leveraged loan issuance

Strong demand from collateral loan obligations helped European loans work through a generally volatile May to post strong new-issue volumes.

M&A was the clear driver for European loans in May, providing €8.5 billion (when including LBO and other related deals) out of a total new-issue volume of €10.5 billion, according to LCD. This meant M&A was responsible for roughly 81% of deals last month, following a not-too-dissimilar share in April (when acquisition-linked loans brought a nearly 90% of supply).

This M&A-led market is certainly what investors had been asking for at the start of the year, having been through several refinancing spikes over the previous 18 months or so. These deals had helped keep reported volumes high, but did not always help those players looking to add assets or maintain returns.

Year to date, leveraged loan issuance  in Europe targeted for institutional investors totals €41 billion, on par with activity at this point last year. – David Cox

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M&A Takes Charge in Europe’s Leveraged Loan Market

european loan volume

M&A activity is driving issuance in the European leveraged loan segment so far in 2018.

So far this year there have been €8 billion in loans backing leveraged buyouts launched to the syndications market, along with €9 billion supporting other M&A. That total, €17 billion, makes up the lion’s share of the €27.4 billion in overall issuance, according to LCD.

And although the market has clearly seen the return of big deals, such as those for ProSieben (€7.3 billion), Wind Telecomunicazioni (€7.2 billion), and TDC A/S (€7.2 billion), M&A-related volume is not only comprised of the headline transactions.

Indeed, this year has seen a steady stream of smaller-scale buyout and acquisitions, along with secondary buyouts. These include the buyouts of Flamingo with a term loan of €280 million, the €195 million TLB backing Cinven’s buyout of Planasa, and Equistone Partners’ sale of E. Winkemann to Cathay Capital Private Equity.

Buy and build has also been a feature of the market, with Nordic Capital’s acquisition of three dental chains in the Netherlands, Switzerland, and Germany, and the €375 million total financing backing Ardian’s buyouts of Spanish bread and bakery companies Berlys and Bellsola. – Taron Wade

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