After hitting record lows at the end of 2017, spreads offered to the riskiest issuers of U.S. leveraged loans are rising.
As of June 8, the average spread over LIBOR for single-B rated borrowers hit 354 bps over LIBOR, according to LCD. That’s the highest it’s been all year, and is up from L+343 at the end of April and from L+338 at the end of December (their lowest point since the financial crisis of 2007-08).
The rise in single-B spreads comes as those borrowers swarm to a U.S. leveraged loan market still flush with investor cash. In the second quarter to date, 73% of new-issue loan activity is courtesy single-B issuers, up from 63% during the first quarter, according to LCD.
While demand remains strong, however, investors have started to push back on at least some deals, helping spreads in the segment level off.
Last month, for instance, Lifescan, which markets blood-glucose monitoring systems under the brand OneTouch, approached the leveraged loan market for $1.7 billion in financing backing private equity sponsor Platinum Equity’s carve-out of the unit from Johnson & Johnson. The $1.4 billion first-lien portion of the loan package was offered to investors at L+450, but was increased to L+600 last week (the discount on the deal was increased, as well).
B+/B2 rated Lifescan was one of a growing number of leveraged loan price flexes favoring investors, after a decidedly more issuer-friendly market (though investor appetite remains substantial). For loans entering the U.S. secondary market, the ratio of price-flexes favoring issuers was 1.6:1 in May, compared to a lop-sided 25:1 in January, according to LCD. – Staff reports