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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.

dividend 6

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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Ancestry.com Returns to Leveraged Loan Mart with $1.9B Recap Deal

ancestry.com logoAncestry.com is back in the loan market with a $1.9 billion recapitalization transaction that will include a $1.35 billion first-lien term loan and a $550 million second-lien term loan, according to sources. A lender call is scheduled for Tuesday at 12:30 p.m. EDT.

Note that J.P. Morgan is left lead on the first-lien and Deutsche Bank leads the second-lien.

Price talk on the seven-year first-lien term loan is L+425–450, with a 1% LIBOR floor, offered at 99.5. Price talk on the eight-year second-lien tranche is L+850, with a 1% floor and an OID of 98.5.

Proceeds will be used to refinance the issuer’s existing $728 million B term loan due 2022, $300 million of 11% opco notes due 2020, and $390 million of 9.625% holdco PIK toggle notes due 2018 as well as to fund a return of capital to shareholders, sources said.

Ancestry’s existing cov-lite term loan was placed in 2015 and that also backed a recapitalization.

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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US Leveraged Loan Funds Extend Inflow Streak With $318M Gain

us loan flows

U.S. leveraged loan funds recorded an inflow of $318.4 million in the week ended Sept. 21, according to the Lipper weekly reporters only. That’s up slightly from $306.2 million last week and just shy of the $318.2 million infusion in the week prior, which is the 2016 high.

With this latest reading, the inflow streak for loan funds hits eight weeks for a total of $1.585 billion over that span.

This week’s result raises the four-week trailing average to an inflow of $251 million, from $246 million.

ETFs accounted for 40%, or $127 million, of the total inflow this week.

Year-to-date outflows from leveraged loan funds now total $3.8 billion, based on outflows of $5.33 billion from mutual funds against inflows of $1.53 billion to ETFs, according to Lipper.

The change due to market conditions this past week was positive $83.7 million. Total assets were $64.6 billion at the end of the observation period. ETFs represent about 11% of the total, at $7.4 billion. — 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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US Leveraged Loans Gain 0.08% Today; YTD Return: 7.44%

Loans gained 0.08% today after gaining 0.05% yesterday, according to the LCD Daily Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, gained 0.10% today.

In the year to date, loans overall have gained 7.44%.

Daily loan index 2016-09-22

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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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Apollo Lines Up $3.425B Leveraged Loan Package Backing Rackspace LBO

rackspaceRackspace Hosting provided the breakdown of the $3.425 billion financing package that will back the buyout of the software company by Apollo Global Management. The financing commitment includes a term facility of up to $2 billion, a $225 million revolver, and an unsecured bridge loan of up to $1.2 billion, a regulatory filing shows.

Citigroup, Deutsche Bank, Barclays, Credit Suisse, and Royal Bank of Canada are leading the financing behind the $4.3 billion buyout. PSP Investments Credit USA also is providing a portion of the financing. The sponsor’s equity contribution will be up to $1.707 billion, according to the filing.

The purchase is expected to close in the fourth quarter, pending customary closing conditions.

Apollo last month announced that it was taking the NYSE-listed company private for $32 per share in cash. After closing, Searchlight Capital Partners will purchase an equity stake in the acquired company.

Rackspace’s existing debt includes a $500 million issue of 6.5% notes due 2024 that was placed in November of last year. Those notes traded at 109 this morning, compared to a 103 context before the news broke last month, trade data shows.

San Antonio, Texas–based Rackspace is buying the cloud computing company that generated revenue in 2015 of $2 billion. —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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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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US Leveraged Loans Gain 0.04% Today; YTD Return: 7.28%

Loans gained 0.04% today after gaining 0.03% on Friday, according to the LCD Daily Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, gained 0.03% today.

In the year to date, loans overall have gained 7.28%.


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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 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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Another (Big) Inflow for US Leveraged Loan Funds; That’s 7 Straight Weeks

us loan funds

U.S. leveraged loan funds recorded an inflow of $306.2 million in the week ended Sept. 14, according to the Lipper weekly reporters only. This is the second largest inflow of the year and coupled with last week’s $318.4 million infusion, it’s the strongest two-week run since March 2014.

Moreover, it extends the current inflow streak to seven weeks, the longest consecutive run since that same period in 2014. The total inflow over that stretch is $1.27 billion.

This week’s result raises the four-week trailing average to $246 million, from $201 million.

ETFs accounted for 58%, or $177.5 million, of the total inflow this week.

Year-to-date outflows from leveraged loan funds now total $4.13 billion, based on outflows of $5.52 billion from mutual funds against inflows of $1.41 billion to ETFs, according to Lipper.

The change due to market conditions this past week was negative for the first time in 11 weeks, at $24.8 million. Total assets were $64.2 billion at the end of the observation period. ETFs represent about 11% of the total, at $7.26 billion. — 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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Demand for Higher-Yielding Leveraged Loans Surges as Supply Slips

supply v demand - leveraged loans

The already issuer-friendly U.S. leveraged loan market kicked into a higher gear in August as institutional investor demand for paper topped available supply – that would be new-issuance – by a whopping $12.1 billion, according to LCD, an offering of S&P Global Market Intelligence.

What does that mean for the market? Thinner pricing (and returns) for investors, for starters.

Indeed, the average yield to maturity dipped to 5.09% in August from 5.28% in July, as U.S. loan investors scrambled for a piece of pretty much any leveraged credit that came to market last month.

To that point, price-flexes, a reliable gauge of  which way the leveraged loan market is tilting, dramatically favored issuers in August. There were 23 deals on which pricing or fees were flexed downward during syndication – benefiting issuers – while only four were flexed higher (benefiting investors).

For this analysis, loan demand includes CLO issuance and inflows to loan funds and ETFs. Supply entails the amount of outstanding loans, per the S&P/LSTA Index.

You can read more about how price-flex works in LCD’s Loan Market Primer (it’s free).

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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.