4 Min Read
(Corrects December 2016 refinancing volume in seventh paragraph.)
By Jonathan Schwarzberg
NEW YORK, March 14 (Reuters) - 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 refinancing.”
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 same year.
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 February 2015.
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 sink.
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)