Why Did Leveraged Loans Issuance Slow Down Last Week?



Primary market activity in leveraged loans

According to data from S&P Capital IQ/LCD, the US leveraged loans market saw an allocation of $2.5 billion in dollar-denominated senior loans in the week ended May 13, 2016. That was the lowest since March 11, 2016. In the previous week, issuance stood at $5.9 billion. The deal flow fell from eight transactions priced in the previous week to five priced in the week ended May 13.

Leverage loans issuance was tepid last week, and most of the issuance was for refinancing purposes.

Senior loans are tracked by mutual funds and exchange-traded funds such as the Hartford Floating Rate Fund – Class A (HFLAX), the Fidelity Advisor Floating Rate High Income Fund – Class A (FFRAX), the Invesco PowerShares Senior Loan Portfolio (BKLN), and the Highland/iBoxx Senior Loan ETF (SNLN).

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Noteworthy transactions

First Data Corporation (FDC) provides commerce-enabling technology and solutions. It issued dollar-denominated add-on term loans worth $1.0 billion on May 13. The B1/BB rated loan was issued for six years at LIBOR + 375 basis points with an OID (original-issue discount) of 99.8. The company expects to use the proceeds of the loan for refinancing.

Russell Investments, a global asset manager, is wholly owned by London Stock Exchange Group (or LSEG). It issued Ba2/BB rated leveraged loans worth $700 million in the following two tranches on May 10:

  • $50 million five-year revolving credit facility
  • $650 million seven-year Term Loan B, issued at LIBOR + 575 basis points with a LIBOR floor of 1.0% and an OID of 94

The proceeds from the offerings will be used for leveraged buyout of Russell Investments from LSEG by TA Associates and Reverence Capital in a transaction valued at $1.2 billion.

Vectra, formerly known as OM Group, is a technology-driven specialty material and specialty chemicals company. It issued dollar-denominated covenant-lite first-lien term loans worth $450 million on May 13, 2016. The Ba3/B rated add-on term loan was issued for five years at LIBOR + 600 basis points with a LIBOR floor of 1.0% and an OID of 90. The proceeds from the offerings will be used for a leveraged buyout of Vectra by Apollo Global Management (APO).

In the next part, we’ll look at leveraged loan funds flows.


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