June 6, 2018 / 3:32 PM / 2 months ago

More U.S. companies shelve refinancings as markets turn choppy

NEW YORK (LPC) - At least two more US companies have postponed opportunistic leveraged loan refinancings after failing to attract investors at the proposed terms on heightened worries about global volatility, sources told Thomson Reuters LPC.

Looking to be better compensated for their risk, lenders stood on the sidelines as tactical and operational equipment logistics company ADS Tactical and decorative lighting company VC GB Holdings marketed a total of US$925m in refinancing loans, adding to a handful of other deals that have been shelved in recent weeks.

Lenders this year have generally been willing to allow companies to lower the pricing on their existing loan holdings, as values in the secondary market have strengthened, rather than allow companies to do full-on refinancings and potentially losing the paper.

As a bevy of new deals hit the market over the last month and secondary prices have dipped, investors have been focusing on which credits they really want to own.

“I think managers are just figuring out right now what they need to sell,” an investor said. “On top of that, you had a little volatility in the background while this was happening, which caused the overall risk environment to pause just a little bit.”

Meager supply for loans and a large appetite for floating-rate assets has left little room for pushback this year, but political turmoil in Italy and tensions with North Korea over potential denuclearization have tipped the balance. When paired with increased deal activity, investors now have the option to be choosy.

“You have a little bit of weakness as you start to push back on some of the repricings so you can focus your time on the ones you like the most,” a portfolio manager said. “There’s a lot of stuff on the market.”

The SMi100, an index that tracks the 100 most widely held loans, dropped slightly to 98.4 on June 4 from 98.6 on May 1.

MARKET FATIGUE

In addition to global macroeconomic concerns, these issuers came to market at a time when investors were showing fatigue at simply allowing issuers to reprice loans at will, several sources said. 

Gaming and entertainment property owner VICI Properties, automotive supplies producer American Axle & Manufacturing, and handling systems maker MHS Holdings all postponed repricings in late May, as previously reported by Thomson Reuters LPC.

ADS Tactical originally proposed a new US$330m seven-year term loan to refinance its existing term loan due in 2022 and senior secured notes due in 2022. Guidance initially went out at 425bp over Libor, and after receiving pushback the company increased the spread to 525bp over Libor and revised the structure to include a US$250m term loan and a US$75m secured note, but the deal was ultimately shelved.

“We were just testing the waters,” said John Dunn, chief financial officer at ADS. “It just wasn’t good enough for us to pull the trigger to move forward with it.”

Wells Fargo led the ADS deal and did not return a request for comment. 

VC GB Holdings, known as Visual Comfort, also postponed a US$595m covenant-lite seven-year term loan B. The company circulated guidance of 325bp over Libor on the loan, which was slated to pay down a US$505m first-lien term loan due in 2024 and a US$150m second-lien term loan due in 2025.

Deutsche Bank led this transaction and declined comment. Visual Comfort did not return requests for comment.

The market’s disinterest in the deals does not reflect investors’ concerns with the credits or an obvious weakness in the credit markets. Rather these deals represent a rebalancing of the market, a banker said. 

Reporting by Jonathan Schwarzberg and Yun Li; Editing by Michelle Sierra and Lynn Adler

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