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US Leveraged Loans gain 0.05% today; YTD Return is 7.72%

Loans gained 0.05% today after gaining 0.04% 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 0.05% today.

In the year to date, loans overall have gained 7.72%.

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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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PetSmart to Reprice $4.25B Leveraged Loan – Again

petsmartLead arranger Citi today launched a repricing of the roughly $4.25 billion B term loan due March 2022 for PetSmart, according to sources. Cashless roll commitments are due by 5 p.m. EDT on Wednesday, Oct. 5, and new money commitments are due by 5 p.m. EDT on Thursday, Oct. 6.

The issuer is seeking to lower pricing on the covenant-lite term loan to L+300, from L+325, with the same 1% LIBOR floor. The repriced loan is offered at par with six months of 101 soft call protection.

PetSmart was last in the loan market in 2015 when it repriced its then $4.3 billion term loan to L+325, from L+400, with the same 1% floor. That transaction was completed just a few months after the original placement that backed the acquisition of the specialty pet retailer by a BC Partners–led consortium.

Existing issue ratings are BB–/Ba3. PetSmart is rated B+/B1. — 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 Issuance Totals $122B in 3Q

leveraged loan issuance

There was $122.3 billion in leveraged loan volume during 2016’s third quarter, down slightly from the $127 billion in the second quarter, according to LCD.

Institutional issuance increased to $94.5 billion, from $87.2 billion, while pro rata activity – the portion of loans syndicated to traditional bank investors – dropped noticeably, to $27.8 billion in the third quarter from $40.5 billion in the second.

YTD, that’s $222 billion institutional (vs $207 billion YTD 2015) and $119 billion pro rata (vs $143 billion). These numbers are preliminary, and could change slightly by quarter-end proper.

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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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THL Credit prices $656M CLO

Morgan Stanley today priced an upsized $655.5 million CLO managed by THL Credit Senior Loan Strategies, according to market sources. This is the manager’s second CLO of the year.

The transaction is structured with the intent to comply with U.S. risk retention with a majority-owned affiliate (MOA) of the manager retaining a 5% vertical slice, according to analysts at Fitch Ratings.

Pricing details are as follows:

Up to 60% of the loans in the portfolio can be covenant-lite, according to Fitch.

The transaction will settle on Nov. 1 with a non-call period running for two years after the settlement and a reinvestment period for four years following the close.

Year-to-date issuance is now $44.53 billion from 100 transactions, according to LCD data. September issuance is now $6.69 billion from 13 CLOs. — Andrew Park

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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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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.

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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.