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After Hiatus, Repricings Return to US Leveraged Loan Market

U.S. leveraged loan repricings, which flourished in the first half of 2018, then disappeared as the market supply/demand equation turned in favor of investors and as new-issue spreads widened, are back.

In the last week of September there were four repricings, and there were four more the first week in October (Fogo de ChaoEmployBridgeProQuest, and Red Ventures). Of course, this surge follows a repricing-free July and an August where repricings tallied just $3.6 billion. A still-light $8.9 billion of repricings were posted in all of September, according to LCD. Note that a spate of big-ticket LBOs kept syndication desks busy last month.

The absence of repricings in the summer is not surprising.

New-issue spreads have widened since the middle of the second quarter. The average new-issue TLB spread on borrowers rated B/B+ reached an intrayear high of L+386 in September, up 50 bps from the 2018 low in March. Likewise, borrowers rated BB/BB– saw spreads rise to roughly L+275, from just over L+200 in May. – Marina Lukatsky

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US LBOs Size Grows to Post-Crisis Highs Thanks to Run of Jumbo Deals

Thanks to a spate of big-ticket deals in September, leveraged buyouts in the U.S. are larger now than at any time since the financial crisis.

During the third quarter the average size of an LBO transaction hit $1.8 billion, according to LCD. That’s up from $1.375 billion during the same period a year ago and is near the record $2 billion average in 2007, at the height of the last credit cycle.

Boosting the 3Q18 numbers are some jumbo LBOs, two of which entail large cross-border leveraged loan components. Chief here is the $17 billion majority buyout of Thomson Reuters’s Financial & Risk unit, now called Refinitiv (link, plus a list of the largest leveraged financings of all time). As well, Carlyle and GIC recently closed financing on their $11.7 billion LBO of Akzo Nobel Specialty Chemicals.

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Free Webinar from S&P: M&A Outlook, with Focus on Debt, Private Equity

S&P Global Market Intelligence is pleased to present a free webinar detailing today’s M&A market, including how current and potential obstacles might affect the leveraged finance world:

M&A Overview, with Focused Insight on the Debt and Private Equity Markets 

  • Date: Thursday, October 11, 2018
  • Time: 11:00 am – 12:00 pm Eastern time
  • Duration: 1 hour

You can register for the webinar here (link).

Included in the webinar: Transaction activity has always been impacted by numerous outside factors. Recent complications include Brexit, trade wars, and tariffs. With numerous potential influences, what is the current state of the market, based on these latest trends?

Join S&P Global Market Intelligence for a complimentary webinar, where industry experts share their insights while focusing on the M&A, Debt, and Private Equity transactional markets.

  • Analyzing recent global M&A volumes and factors driving activity. What is the outlook of M&A deals for the US?
  • Debt markets and LBO activity: What is the current state of the market?
  • Deep dive into private equity including buy and sell-side conditions and strategies

Moderator
Lawrence Choy
Associate Director – Corporates Segment
S&P Global Market Intelligence

 

Panelists
Nathan Stovall
Senior Research Analyst – FIG Research
S&P Global Market Intelligence

 

Ruth Yang
Managing Director – Leveraged Commentary & Data
S&P Global Market Intelligence

 

Justin Abelow
Managing Director – Houlihan Lokey
Financial Sponsors Group

Webinar viewers can, while registering, submit questions to be answered by the panelists.

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LCD comps is 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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European Leveraged Loan Returns Hit 16-Month High

The European secondary loan market recorded the best performance for more than a year in September, propelled by strong investor demand for loans.

Consequently, the S&P European Leveraged Loan Index (ELLI) gained 0.56% in September, a 16-month high, rounding out an already strong quarter for loans. Indeed, the ELLI returned 0.37% in July and 0.51% in August, following a monthly average of only 15 bps during the first half of 2018. As a result, the quarterly gain of 1.44% was a two-year high — edging out 2Q17’s  return of 1.43%, and up from a rather flat second quarter, which gained just 0.16%. Despite the strong third quarter, the year-to-date return continued to lag 2017, running at 2.35%, versus 3.49% in the first nine months of 2017. – Staff reports

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LBOs Dominate Leveraged Loan Issuance in 3Q18

loan issuance by purpose

While leveraged loan issuance in the U.S. slowed in 2018’s third quarter, LBO activity surged, thanks to huge credits backing Refinitiv, Akzo Nobel, and Envision Healthcare.

These three deals comprise nearly 40% of all LBO loan activity over the past three months. The remaining $30 billion is not exactly small potatoes. In total, LBO activity in the third quarter hit $48.3 billion, a record, according to LCD. – Staff reports

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Leveraged Loan Default Rate Dips Again After Third Straight Blemish-Free Month

leveraged loan defaults

For a third consecutive month there were no new defaults among constituents of the S&P/LSTA Leveraged Loan Index. Consequently, the default rate fell to a 10-month low of 1.81% in September, from 1.99% in August.

Though the rate has declined significantly from the three-year high of 2.42% at the end of March, it remains well inside the 3% historical average where, as detailed below in LCD’s quarterly default survey of loan portfolio managers, it is expected to stay for a couple more years.

By issuer count, the default rate fell to 1.59%, down from 1.71% at the end of August.

This marks the first three-month default-free streak in the Index since August 2014, though some potential situations loom.

The well-flagged 30-day grace period on American Tire’s missed Sept. 1 interest payment, for one, is set to expire at the end of September. Tweddle Group, meanwhile, is said to be negotiating a deal to equitize its term loans.

Other Index issuers whose debt is trading in technical distress include American Commercial LinesCaelus EnergyCatalina MarketingEmpire Generating Co.Longview PowerDavid’s BridalFullBeauty BrandsCrossMarkPetcoPhillips Pet Food & SuppliesCTI FoodsDixie ElectricAcademy LtdAcosta, and Revlon, among others. – Staff reports

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LCD comps is 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 Global Ratings Publishes Comprehensive CLO Primer

S&P Global Ratings recently published a comprehensive primer to provide a high-level overview of the collateralized loan obligation (CLO) market.

The Primer begins with “What is a CLO?” and covers topics such as:

  • The typical structure of a CLO
  • What is a broadly syndicated loan?
  • How is the portfolio of a CLO composed and how do the different tests work?
  • The typical CLO lifecyle
  • An overview of how S&P Global Ratings analyzes each CLO

You can view the CLO Primer here.

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Amid Investor Demand, Envision Accelerates Response Date on $5B Leveraged Loan

Leveraged loan investors considering the $5.05 billion first-lien term loan backing KKR’s buyout of Envision Healthcare have until tomorrow to commit to the deal, as opposed to the original deadline of Oct. 1, according to sources.

No further changes on the Credit Suisse-led deal were announced.

Price talk for the seven-year covenant-lite TLB is L+400, with a 0% LIBOR floor and an OID of 99–99.5. That works out to a yield to maturity of about 6.59–6.68%. Lenders are offered six months of 101 soft call protection.

The full arranger group includes Citi, Morgan Stanley, Barclays, Goldman Sachs, Jefferies, UBS, RBC Capital Markets, Societe Generale, HSBC, Mizuho, BMO Capital Markets, SunTrust Robinson Humphrey, Credit Agricole, and KKR Capital Markets.

Agencies have assigned ratings of B+/B1 to the first-lien facility, which includes a $300 million revolver due 2023, with a 3 recovery rating from S&P Global Ratings. A $550 million ABL facility is rated BB/Ba1, with a 1 recovery rating. Corporate ratings are B+/B2, with negative and stable outlooks, respectively.

Additional financing for the buyout will come from a $1.625 billion offering of eight-year (non-call three) unsecured notes.

KKR announced in June that it was taking Envision private for $46 per share in a deal valued at roughly $9.9 billion, including debt. Envision (NYSE:EVHC) is a provider of physician-led services and post-acute care, and ambulatory-surgery services. — Jon Hemingway

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US CLO Issuance Continues on Record Pace; $99B YTD

US CLO issuanceCLO issuance in the U.S. has totaled $99 billion already this year, easily outpacing the $71 billion at this point one year ago, according to LCD. The CLO market is on pace to top the record $124 billion in 2014.

CLOs are special-purpose vehicles set up to hold and manage pools of leveraged loans.

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European CLO Issuance Continues on Record Pace

Europe CLO issuance

Issuance of collateralized loan obligation vehicles in Europe so far this year, at €20.41 billion, has nearly topped the €20.91 billion seen during all of 2017, according to LCD.

While activity in the segment is expected to roll on, a pair of huge cross-border LBOs to clear market recently – Refinitiv and Akzo Nobel – did cause some consternation for CLO players, as those deals priced at a tighter level than expected, market sources said.

Refinitiv’s $2.75 billion-equivalent euro-denominated term loan priced at E+400, after being initially launched to market at E+425, while a €1.79 billion credit for Akzo eventually priced at E+375 after being first talked at E+425. Pricing on both was cut due to investor demand.

Refinitiv backed Blackstone’s $17 billion acquisition of a Thomson Reuters Financial & Risk unit stake. Akzo backed Carlyle and GIC’s buyout of the company.

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LCD comps is 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.