(Corrects December 2016 refinancing volume in seventh
By Jonathan Schwarzberg
NEW YORK, March 14 More than US$200bn of US
leveraged loans have been refinanced or repriced so far this
year and with two weeks to go before the end of the quarter,
volume is approaching the last peak of activity in the second
quarter of 2013, when US$245bn of loans were redone.
February was the busiest-ever month for repricing and
refinancing, with US$122bn of loans completed, topping the
previous record of US$111.7bn in February 2013, according to
Thomson Reuters LPC data.
“The pace of refinancing activity so far has been
remarkable,” said Ioana Barza, director of analysis, Capital
Markets Insight, Thomson Reuters LPC. “Strong demand from loan
retail funds, Collateralized Loan Obligation (CLOs) funds and
separately managed accounts along with the absence of sufficient
new money dealflow have allowed issuers to continue to pursue
Borrowers have been able to slash pricing on existing loans
due to high investor demand for floating-rate assets, which are
being used to hedge against interest rate rises, as cash
continues to pour into the asset class.
Loan funds have seen strong inflows since August 2016 with
the exception of one week in November. The funds have seen 17
straight weeks of inflows with another US$1.2bn added last week,
which brings the four-week moving average up to US$923.7m.
The Federal Reserve is expected to increase the Federal
Funds rate on Wednesday, after two previous recent increases in
December 2015 and December 2016.
The repricing wave built momentum in the second half of
2016, particularly after the US elections in November. Around
US$68bn of deals were completed in December, which brought
fourth quarter volume of US$172bn and US$73bn of deals were
completed in January.
Companies including telecommunications and Internet services
provider Level 3 Communications Inc have been able to make
substantial savings, some cutting as much as 75-100bp from the
interest margins of existing loans.
Level 3 increased a term loan refinancing to US$4.6bn from
US$2.6bn in February and was able to drop pricing during
syndication to 225bp over Libor from guidance of 250bp over
Libor, saving 50-75bp on the existing loans. Travel technology
provider Sabre Corp also priced a US$1.9bn seven-year term loan
at 275bp over Libor also on February 16 to refinance debt.
Some companies, including networking company Riverbed
Technology Inc, have been able to reprice loans twice within the
Riverbed dropped pricing on its US$1.6bn term loan to 325bp
over Libor in December after repricing the loan at 400bp over
Libor in May 2016 from 500bp over Libor where it first priced in
With relatively few new money deals to invest in, investors
have had little choice but to agree to cut returns on their
loans, which is putting CLOs' returns under pressure as yields
Loans backing new money transactions, including mergers and
acquisition activity and dividend deals, made up only 24% of
leveraged issuance in the first quarter of 2017, down from 63%
in the first quarter of 2016.
Refinancing activity is on pace to continue strong with
US$28bn of deals in process already for March.
Media company Univision Communications this month extended
the maturity of its US$4.5bn term loan to March 2024 from March
2020 and set the price at 275bp over Libor after guiding the
deal at 300bp over Libor.
Hilton Worldwide also this month repriced a US$3.2bn term
loan B-2 at 200bp over Libor and added on US$750m to the loan to
extend a portion of its term loan B-1.
(Reporting by Jonathan Schwarzberg; Editing By Tessa Walsh)