LPC: Investor demand revives U.S. leveraged loan refinancing

Thu Mar 24, 2016 10:01am EDT
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By Jonathan Schwarzberg

NEW YORK, March 24 (Reuters) - U.S. companies including payment technology firm First Data Corp and electricity generator Atlantic Power Corp are starting to refinance leveraged loans in a sign that conditions in the beleaguered market could be improving slightly as inflows and increased investor demand create a window of opportunity for firms to extend debt maturities.

Leveraged loans have seen two weeks of small inflows, breaking a 32-week streak of outflows and refinancing activity, which first reappeared in the U.S. high-yield bond market after five weeks of strong inflows, is finally starting to appear in the more selective loan market.

Volume is sharply lower in the U.S. leveraged loan market this year after volatility pushed pricing higher in late 2016 and banks have struggled to underwrite new deals as they tried to sell an overhang of deals left over from last year.

Only $34.5 billion of loans have been refinanced so far this year, which is 33 percent lower than the same period of 2015. Companies refinanced a total of $377.4 billion of debt last year.

"After a long lull with very infrequent or even absent refinancing activity, the tone has improved enough that at least the higher quality end is starting to be able to tap the market," said a senior investment banker.

Healthcare company HCA Inc reopened the refinancing market on March 4 with a $1.5 billion refinancing and more companies are expected to follow to extend looming maturity dates up to 2018, particularly after high-yield bond and leveraged loan yields dipped in February.

First Data and Atlantic Power announced plans to tackle 2018 maturities Tuesday, after chemical firm Huntsman Corp unveiled a refinancing the previous week to refinance nearer term 2016 and 2017 maturities with a new $550 million, seven-year term loan. Huntsman was able to reduce its borrowing cost slightly by tightening the discount to 99.5 last Wednesday from 99 after the deal was well received by investors.

"Given the high-yield index has tightened 200 basis points since February 11, we're seeing more opportunistic issuers decide to access the market," another senior investment banker said.   Continued...