Why pricing is competitive for certain senior loans transactions

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Nov. 27 2019, Updated 2:23 p.m. ET

Primary market activity in leveraged loans

$5.8 billion worth of senior loans (BKLN) (SNLN) across ten transactions were allocated in the U.S. leveraged loans market last week. This was 26.1% higher than the $4.6 billion priced in the week ending October 31. Deal flow was also higher with ten transactions in the November 7 week, compared to seven the previous week.

The relatively favorable market environment in recent weeks drove higher primary market activity. Yields had declined, which encouraged issuers to take advantage of improved market conditions, both in the junk bonds (JNK) (HYG) and the leveraged loans space. An improving economy and upbeat corporate Q3 earnings releases were mainly responsible for the changing sentiment over the past few weeks.

Pricing remains challenging for senior loans

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As has been the trend since the volatility spike in early August, higher-rated and the more prominent borrowers found it easier to push across competitive pricing to investors. The average yield for BB-rated new issues declined from 4.71% to 4.50% week-on-week. Market conditions, albeit improved, remained relatively challenging for lower-rated borrowers in the senior loans space.

Purpose of issuance

The proceeds from new issues priced in the week were earmarked for funding acquisitions (five transactions), leveraged buyouts (four transactions), and restructuring (one transaction).

TransFirst’s $1.07 billion financing package was the largest deal of the week. The payment solutions technology provider’s three-part loan package included:

  • A $50 million, 5-year Revolving Credit Facility (or RCF), rated B1/B
  • A $700 million Cov-lite 1st-Lien 7-year Term Loan rated B2/B and issued at LIBOR + 450 basis points with a LIBOR floor of 1.00% and an Original Issue Discount (or OID) of 99
  • A $320 million Cov-lite 2nd-Lien 8-year Term Loan rated Caa2/CCC+ and issued at LIBOR + 800 basis points with a LIBOR floor of 1.00% and an Original Issue Discount of 99

The company plans to use the proceeds to finance its LBO by private equity firm, Vista Equity Partners.

Norwegian Cruise Line undertakes loan for Prestige Cruises acquisition

A Norwegian Cruise Line Holdings Ltd. (NCLH) subsidiary undertook term loans worth $950 million. The proceeds from the funding will go towards NCLH’s purchase of Prestige Cruises.

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