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Why Leveraged Loans Issuance Skyrocketed Last Week

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Primary market activity in leveraged loans

Leveraged loan issuance skyrocketed last week. This came as lead managers cleared the backlog and issuers proceeded with more speculative transactions that had long been planned.

According to data from S&P Capital IQ/LCD, the US leveraged loans market saw an allocation of $18.4 billion worth of dollar-denominated senior loans in the week ended August 5. It was the third highest year-to-date. In the previous week, issuance was $7.2 billion. The deal flow increased to 17 transactions priced last week, from six transactions in the previous week.

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

Broadcom, formerly known as Avago Technologies (AVGO), is a designer, developer, and global supplier of a broad range of analog and digital semiconductor connectivity solutions. It issued a Ba1/BBB rated leveraged loan worth $6.6 billion on August 1, 2016.

The Term Loan B-3 was issued for seven years at LIBOR + 300 basis points with a LIBOR floor of 0% and an OID (original-issue discount) of 100. The company intends to use the proceeds of the loan for refinancing.

Ultimate Fighting Championship (or UFC), a sports company, issued leveraged loans worth $1.8 billion in the following two tranches on August 3, 2016:

  • $1.4 billion B1/B+ rated seven-year covenant-lite Term Loan B, issued at LIBOR + 400 basis points with a LIBOR floor of 1.0% and an OID of 99.5
  • $425 million Caa1/CCC+ rated eight-year second-lien Term Loan, issued at LIBOR + 750 basis points with a LIBOR floor of 1.0% and an OID of 99

The proceeds from the transaction will be used to back the leveraged buyout of UFC by William Morris Endeavor Entertainment.

Avast Software, headquartered in Prague, Czech Republic, develops antivirus and anti-spyware protection software. It issued a Ba3/BB rated dollar-denominated leveraged loan worth $1.6 billion on August 3, 2016. The Term Loan B was issued for six years at LIBOR + 400 basis points with a LIBOR floor of 1.0% and an OID of 99.5. The company intends to use the proceeds of the loan for the the acquisition of AVG Technologies (AVG).

Hospital Corporation of America (HCA) provides healthcare facilities in the United States. It issued a Ba1/BBB rated leveraged loan worth $1.2 billion on August 4, 2016. The Term Loan B-7 was issued for 7.5 years at LIBOR + 275 basis points with a LIBOR floor of 0% and an OID of 100. The company intends to use the proceeds of the loan for refinancing.

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

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