LPC: Companies refinancing loans overtake new deals for mergers, LBOs
By Lynn Adler and Jonathan Schwarzberg
NEW YORK, Sept 8 (Reuters) - US companies are borrowing more to cut costs, extend loan maturities and pay down junior debt than to raise new money for mergers or leveraged buyouts (LBOs), in a growing trend that could extend through year end.
The leveraged loan market's price surge over the past six months, combined with lingering low interest rates and robust investor demand, is driving a burst of refinancing and repricing of existing deals until M&A and LBO activity heats up.
The widespread borrower list has propelled refinancings and repricings to 53% of total leveraged loan issuance this quarter, on track to top last year's pace, according to Thomson Reuters LPC data. The year-to-date share of 48% matches full-year 2015, the highest since 58% in 2014.
"Everything is going to reprice that can, and that scream is going to get louder," said Lauren Basmadjian, portfolio manager at Octagon Credit Investors.
The current burst of refinancing activity includes companies with weaker credits looking to streamline or otherwise alter their capital structure. Among them, security company Monitronics is in the market with a US$700m loan, and educational software provider Blackboard Inc is seeking to amend and extend its US$984m term loan B-4.
"Almost everything is opportunistic," with pent-up refinancing, repricing and dividend deals, said a senior banker. "There's cash in the system and not enough in new-money issuance. We need US$50bn, US$60bn or US$70bn in new-money deals."
A quick pick-up in M&A activity is unlikely, based on looming year-end uncertainties including the US elections and Federal Reserve policy decisions, investors and bankers said. LBO business, meantime, has been contained by regulations limiting the amount of debt taken in those deals.
New loans accounted for more than 90% of tepid leveraged loan issuance in the first quarter, when a perfect storm of worry over low oil prices, as well as the U.S. and Chinese economies, sidelined investors. Continued...