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Leveraged Loan Issuance Fell amid Brexit Volatility Last Week

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Primary market activity in leveraged loans

According to data from S&P Capital IQ/LCD, the US leveraged loan market saw an allocation of $15.9 billion of dollar-denominated senior loans last week. In the previous week, issuance came in at $26.6 billion. The deal flow fell from 32 transactions priced in the previous week to 19 priced last week.

Leveraged loan issuance slowed last week as the Brexit vote slammed global stock markets. It also raised speculation that the Federal Reserve would delay raising rates any further. Some of the largest deals were priced in before the Brexit vote, and the pipeline of new issues was relatively light in the wake of uncertainty in financial markets.

Senior loans are tracked by mutual funds and ETFs 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

Prime Security Services‚ a subsidiary of Apollo Global Management (APO), issued Ba2/BB- rated leveraged loans worth $2.768 billion in two tranches on June 20.

  • a $918 million five-year add-on covenant-lite Term Loan, issued at LIBOR + 375 basis points with a LIBOR floor of 1.0% and an OID (original issue discount) of 100
  • a $1.85 billion six-year add-on covenant-lite Term Loan, issued at LIBOR + 375 basis points with a LIBOR floor of 1.0% and an OID of 99.5

The proceeds from the offering will be used for repricing.

WEX (WEX) provides global payment solutions. It issued Ba3/BB- rated leveraged loans worth $2.125 billion in three tranches on June 24:

  • a $470 million five-year RCF (revolving credit facility), issued at LIBOR + 325 basis points
  • a $445 million five-year Term Loan A
  • a $1.21 billion seven-year covenant-lite Term Loan, issued at LIBOR + 350 basis points with a LIBOR floor of 0.75% and an OID of 99

The company will use the proceeds of the offering to acquire Electronic Funds Source for nearly $1.5 billion.

Dynegy (DYN) issued an add-on covenant-lite Term Loan B worth $2.0 billion on June 22. The Ba3/BB rated loan was issued for seven years at LIBOR + 400 basis points with a LIBOR floor of 1.0% and an OID of 99. The company intends to use the proceeds of the loan for refinancing.

Allied Universal Corporation specializes in water treatment chemicals. It issued B2/B+ rated leveraged loans worth $1.81 billion in two tranches on June 21:

  • a $300 million five-year RCF
  • a $1.51 billion six-year covenant-lite Term Loan, issued at LIBOR + 475 basis points with a LIBOR floor of 1.0% and an OID of 99

The proceeds of the transaction will be used to back the merger of AlliedBarton Security Services and Universal Services of America and to refinance the existing Term Loan of AlliedBarton Security Services.

In the next part of this series, we’ll look at leveraged loan fund flows.

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