What are leveraged loans?
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 (or the arrangers) like Goldman Sachs (GS). It’s then syndicated to other banks or institutional investors.
Leveraged loans are issued by companies rated below investment grade like Intelsat S.A. and H. J. Heinz. The PowerShares Exchange-Traded Fund Trust (BKLN) is an example of an ETF that invests primarily in leveraged loans. GS’ holdings include debt issued by both Intelsat S.A. and H. J. Heinz.
Leveraged loans primary market activity for the week ended September 5
Leveraged loan issuance was still in a summer slump, with no new transactions closing in the week ended September 5. As mentioned earlier in this series, August is typically a slow month for investment banking activity.
Also, the recent increase in yields for lower-rated borrowers had made market conditions unfavorable for new issues. Earlier in August, a number of issues had been re-priced, downsized, or withdrawn from the market altogether as issuers waited for market conditions to improve.
But the new issue pipeline was strong. According to S&P Capital IQ/LCD data, the visible pipeline is estimated at $53 billion, of which merger and acquisition related deals account for $46 billion.
Major deals in the pipeline include Burger King’s (BKW) financing package for its proposed acquisition of Tim Hortons, the Canadian quick service restaurant chain. Another megadeal could come in the future via Norwegian Cruise Lines Holdings’ (NCLH) $3.03-billion acquisition of Prestige Cruise.
Collateralized Debt Obligations
But collateralized debt obligation (or CLO) deals didn’t totally dry up. Two CLO deals for $740 million came through in the week ended September 5. Last week brings the year-to-date issuance and transaction figures to $85.7 billion and 159 deals, respectively. (Data source: S&P Capital IQ/LCD)
In the next part, you’ll read about secondary market activity in leveraged loans.