October 14, 2019 / 12:54 PM / a month ago

Loan pricing set to tighten in repricing wave

LONDON, Oct 14 (LPC) - Pricing in Europe’s leveraged loan market is set to grind tighter in the last quarter of 2019 as bankers opportunistically pitch repricings to borrowers in a bid to keep busy towards year-end and the pipeline of new deals dries up.

Two repricings closed last week for antivirus software firm Avast and UK financial technology firm Finastra, which both knocked 25bp off their interest margins. More companies are expected to follow, with a number of repricings and refinancings in the pipeline.

“It doesn’t feel like enough is coming. We are working on a couple of things but they are all next year’s stuff probably, so we are pitching repricings,” a capital markets head said.

The market is in the final stages of digesting an €18bn pipeline of event-driven financings that came to the market from September onwards, giving temporary relief to what has been a sparse year in leveraged loans, prompting concern among bankers that are coming in 40%-50% under budget.

German sanitary service provider ADCO Group tightened pricing on a €475m term loan B backing its acquisition by private equity firm Apax Partners on Friday. The seven-year covenant-lite loan priced at 400bp over Euribor, tightened from guidance of 425bp-450bp, with a 0% floor and an OID of 99.5.

There is always a pricing premium on new issue, as borrowers pay to get a supportive investor base. However, pricing on new deals is coming in at such a level that there is room to tighten existing issue, especially when it is trading over par on Europe’s secondary loan market.

Elsewhere, investors have until Wednesday to commit to a £2.193bn-equivalent loan backing the buyout of UK theme park and attraction operator Merlin Entertainments by an investment vehicle of Lego’s founding family, and private equity firm Blackstone.

Pricing on the B1/B+ credit is guided at 300bp-325bp over Euribor on a £1.252bn-equivalent euro-denominated term loan and 325bp-350bp over Libor on a £941m-equivalent dollar-denominated term loan.

With new deals coming at this level of pricing, anything that priced wider earlier in the year is a potential repricing candidate.

“Anyone that has done a deal with pricing that begins with a four handle will have a repricing pitched,” the capital markets head said.

A £1.985bn-equivalent loan that forms part of a wider £2.517bn financing backing private equity firm Advent’s £4bn buyout of UK defence and aerospace group Cobham is expected to launch in November and will be one of the last mega event-driven financings to come in 2019.

The flurry of repricings expected to cover the shortfall in new deals is unlikely to alleviate the budgetary concerns of bankers. While they serve to keep desks busy and go some way to strengthening banker/sponsor relationships, they provide little in the way of monetary relief. (Editing by Christopher Mangham)

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