But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Leveraged loan issuance in the primary market for the week ending July 18
The week ending July 18, saw total leveraged loans issuance plunge by ~73% week-over-week, to $4.4 billion in seven transactions. The number of deals was almost half the previous week’s levels. In the week ending July 11, there were 13 deals in the leveraged loans (BKLN) primary market with issuance coming in at $16.2 billion (Source: S&P Capital IQ/LCD).
Use of proceeds
Borrowers issued leveraged loans, primarily with the purpose of re-pricing or refinancing older debt, paying dividends, financing leveraged buyouts (or LBOs), and pursuing acquisition opportunities.
Take-private deals have been thin on the ground in 2014, accounting for a mere 3.5% of total LBO volume. Goodpack’s $720 million two-tranche cov-lite transaction announced last week, was one of the major deals in this segment. Singapore-based Goodpack owns the world’s largest fleet of intermediate bulk carriers. It’s primarily engaged in the business of renting these out to multinational corporations (or MNCs).
The proceeds from the $720 million offering are earmarked for Kohlberg, Kravis, and Roberts’ (KKR) $1.1 billion take-private LBO of the transportation company. The financing package consists of a $520 million first lien term loan due in 2021 and a $200 million second lien term loan due in 2022.
Offshore deepwater drilling services provider Ocean Rig (ORIG) announced an increase of $500 million in the issue amount of their proposed senior secured term loan to $1.3 billion. ORIG pulled its planned high-yield senior notes offering and substituted it with the term loan, citing favorable loan market conditions. ORIG plans to use the proceeds to pay off existing debt.
Another major refinancing deal launched last week was the Formula One Group’s $2 billion cov-lite financing package. The proceeds are slated for refinancing the company’s high-yield debt (HYG) and also for funding a dividend to its shareholders.
Collateralized Loan Obligations deals
There were three collateralized loan obligation (or CLO) deals for total issuance volumes of $1.4 billion, in the week ending July 18. This was down from five deals with issuance volumes of $2.6 billion, in the week ending July 11. Last week’s figures brought the total number of CLO deals in 2014 to 127, for issuance amounting to $68 billion.
The 2Q14 recorded the highest levels of issuance in the CLO space ever at $32.3 billion. Investor interest in CLOs has been high in 2013 and 2014, as the asset class has the ability to slice and price risk according to the risk appetite of the investor.
What are leveraged loans?
Leveraged loans are issued by companies rated below investment grade. A leveraged loan is a commercial loan provided by a group of lenders. Typically secured, the loan is structured, arranged, and administered by investment and commercial banks, the arrangers—for example, JPMorgan (JPM). It’s then syndicated to other banks or institutional investors. The interest rate on leveraged loans is floating rate and paid as a spread over an interest rate benchmark, such as LIBOR. Interest rates on leveraged loans are usually paid at or above LIBOR + 1.25%.
© 2013 Market Realist, Inc.