Why leveraged loan volumes surged last week

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Leveraged loan activity in the week ending September 19

Leveraged loans are secured, commercial loans. They’re provided by a lending consortium. Leveraged loans are structured, arranged, and administered by investment and commercial banks—the arrangers—like JPMorgan (or JPM). Then, they’re syndicated to other banks or institutional investors.

Leveraged loans are issued by companies’ borrowers rated below investment-grade. Leveraged loans pay a floating interest rate—usually at or above LIBOR + 1.25%. The Invesco PowerShares Senior Loan Portfolio (BKLN) is an exchange-traded fund (or ETF) with holdings in leveraged loans.

Part 6

Leveraged loan primary market activity for the week ending September 19

There were ten new transactions that hit the U.S. leveraged loan market. They had volumes of ~$9.9 billion. In comparison, there were only two deals the previous week. The deals were for ~$0.7 billion in issuance.

Most financing transactions were undertaken in order to finance acquisitions or leveraged buyouts (or LBOs). There was one refinancing-related transaction in the week. An increase in yields, along with adverse market sentiment, resulted in lower refinancing-related transactions.

Deals overview

AECOM Technology’s (ACM) had a three-part deal. It was an ~$4.2 billion financing package. It was the largest transaction last week. It included:

  • Five-year, $~1.1 billion revolving credit facility
  • Five-year, Term Loan A: ~$1.9 billion
  • Seven-year, covenant-lite Term Loan B: $1.2 billion

ACM plans to use the proceeds to partially fund its proposed $4 billion acquisition of URS Corp. ACM also issued $1.6 billion in senior unsecured notes last week. Refer to Part 3 in this series for more details. ACM is part of the SPDR S&P MidCap 400 ETF (MDY).

Another major acquisition-related transaction last week was Scientific Games International’s (SGMS) two-part $2.4 billion financing package. SGMS plans to use the proceeds to partially finance the company’s $5.1 billion acquisition of Bally Technologies.

Leveraged loan pipeline

Deals in the pipeline are estimated at $56.7 billion. This includes Burger King Worldwide’s (BKW) two-part financing package. It includes a $500 million revolving credit facility and ~$6.8 billion in a covenant-lite term loan. BKW plans to use the proceeds to finance its acquisition of Canadian Quick Service Restaurant chain, Tim Hortons. You can find a detailed analysis of the merger in the Market Realist series, “Merger must-read: Why Burger King decided to acquire Tim Hortons.”

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