May 31, 2018 / 6:17 PM / in 5 months

American Axle loan refinancing shelved: sources

NEW YORK (LPC) - A refinancing transaction for driveline system maker American Axle & Manufacturing was shelved as a softening in the equity and corporate debt markets is making investors wary of buying into leveraged loans that could lose value in a weakened secondary market, sources said.

The US$1.5bn deal was an opportunistic repricing and the company realized it wouldn’t achieve the pricing it was looking for, a sellside source said.

Investors were expected to commit to the loan by May 24 but they stood on the sidelines as the US loan market weakened in line with equities. Failing to attract buyers by the deadline, agent JP Morgan took the deal off of the market.

“They waited, and every day they waited the market got worse,” a trader said. “They waited for it to bounce and it didn’t improve.”

American Axle is one of the recent deals to falter as a softer secondary market for leveraged loans has caused investors to push back on aggressive terms after a long one-way market in favor of borrowers. A US$2.1bn Golman Sachs-led refinancing for VICI Properties also was recently pulled, according to sources.

US stocks were volatile last week as macroeconomic headlines that were seen as bearish for the global markets mounted. A decision from the US government this week to impose metal import tariffs on Canada, Mexico and the European Union sparked fresh concerns of a trade war with top allies.

US shares sank more than 1% in value Tuesday on downbeat guidance on trading from JP Morgan and worries over Italy, according to Reuters, and were eroding again on Thursday.

“There’s a lot of Libor plus 175bp paper that is trading poorly. BB-rated names or lower are trying to go tight and are being bid below their [Original Issue Discount],” a buyside source said.

American Axle said earlier this month it was looking to lower pricing on its US$1.5bn term loan due in April 2024. The company circulated guidance of 200bp over Libor with a 0% Libor floor and an issue price in the 99.875-100 range.

“With the number of deals trying to get done at lower coupons, people didn’t want to do it anymore,” the buyside source said.

American Axle is rated B1/BB-. The loan is rated Ba2/BB.

“I think the feeling is that the market should straighten out, but in the near term it’s going to be a little bit harder for repricings,” a second buyside source said.

American Axle lined up the loan at a size of US$1.55bn in March 2017 to support its acquisition of Metaldyne Performance Group. The loan priced at 225bp over Libor with a 0.75% floor.

“The market is pulling back. People are going to start saying ‘no’ soon,” the trader said.

JP Morgan declined to comment. A representative from American Axle did not return calls by press time.

Reporting by Michelle Sierra; Editing by Lynn Adler and Jon Methven; Additional reporting by Jonathan Schwarzberg

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