increased safety demands by regulators, and
higher-than-anticipated costs for labour,
equipment and components.
The plants included Vogtle in Georgia,
owned by a group of utilities led by
Southern Co, and VC Summer in South
Carolina, owned by utility Scana Corp.
Management of Vogtle will be taken over by
Southern Co. VC Summer was abandoned in
July.
Westinghouse was acquired by Toshiba in
2006 for US$5.4bn at a time of increased
interest in cleaner fuel sources. It expected
to build dozens of its new AP1000 reactors,
hailed as safer, quicker to construct and
more compact, creating a pipeline of work
for its maintenance division.
However, a glut of cheap natural gas from
shale, the lack of US legislation to curb
carbon emissions and the 2011 Fukushima
nuclear accident in Japan dampened
enthusiasm for nuclear power.
The unit’s bankruptcy prompted Toshiba
to sell its memory chip business to shore up
its balance sheet. Toshiba in September
agreed to sell the business to a group led by
PRIVATEûEQUITYûlRMû"AINû#APITALûFORû53BN
Westinghouse recently reached an
agreement with its creditors that will clear
its path out of bankruptcy.
The deal will divvy up cash from the
PROPOSEDûSALEûTOû"ROOKlELDû"USINESSû
0ARTNERS ûANûAFlLIATEûOFû#ANADASû"ROOKlELDû
Asset Management. It increases the
likelihood the bankruptcy will be resolved
BEFOREû4OSHIBASûlSCALûYEARûENDSûONû-ARCHû
31, ensuring the Japanese company receives
CERTAINûTAXûBENElTS
As part of the agreement, Toshiba will sell
its claims to a group of hedge funds led by
the Baupost Group, making the group the
biggest creditor in the case, Reuters
REPORTEDû4HEûCLAIMSûSALEûHELPSûAVOIDûlGHTSû
among creditors that threatened to slow
down the case.
MEREDITH CUTS PRICINGMedia group MEREDITH CORP lowered pricing
on a US$1.8bn term loan B supporting its
US$2.8bn purchase of Time.
Pricing on the seven-year term loan is
BPûOVERû,IBORûWITHûAûûmOORûANDûAû
DISCOUNTûOFû ûHAVINGûLAUNCHEDûATûBPû
WITHûAûûmOORûANDûAûDISCOUNTûOFûû4HEû
term loan includes six months of soft call
protection at 101.
The transaction includes a US$350m
revolving credit facility.
Royal Bank of Canada led with Credit Suisse,
Barclays and Citigroup.
The corporate rating is B1/B+. The debt is
rated Ba2/BB.
In addition to the loan, the company is
expected to sell US$1.4bn of unsecured
NOTESûTOûlNANCEûTHEûACQUISITIONûANDûUSEû
US$650m of preferred equity from Koch
Equity Development.
Chemicals company PQ CORP cut pricing on a
US$1.255bn seven-year term loan that
RElNANCESûTHEûCOMPANYSûDOLLAR
DENOMINATEDû
and euro-denominated term loan debt.
Citigroup led the covenant-lite loan with
Credit Suisse, Morgan Stanley, JP Morgan,
Jefferies, Goldman Sachs, Deutsche Bank and
KeyBank.The spread on the seven-year loan is
BPûOVERû,IBORûWITHûAûûmOORûANDûAû
DISCOUNTûOFûûAFTERûPRICINGûINITIALLYû
CIRCULATEDûATûBP
BPûWITHûAûûmOORû
ANDûAûDISCOUNTûOFûû4HEûLOANûWILLû
amortise at 1%.
)Nû!UGUSTû û01ûREPRICEDûITSûDUAL
currency term loan, lowering the spread on
its US$920.8m term loan to 325bp over Libor
WITHûAûûmOORûANDûITSûõMûTERMûLOANûTOû
BPûOVERû%URIBORûWITHûAûûmOORLOANS LEVERAGED LOANSLoan funds remain appealing
US Fed rate hikes set to prompt consistent net inflowsRetail investors are expected to keep pouring
money into leveraged loan funds this year as they
continue to show a clear preference for floating-
rate assets in a rising interest rate environment,
portfolio managers said.
Net inflows of nearly US$13bn in 2017 were
34% higher than in 2016, despite moderate
outflows in most weeks since early August.
Rising inflation is expected to push interest
rates higher and eat into the returns of fixed
income securities, which will fire up demand for
loan mutual funds and exchange-traded funds
as the year progresses.
The strength of demand for floating-rate
funds contrasts starkly with the US$22bn
withdrawn from high-yield bond funds last year,
compared with US$9.75bn of inflows to high-
yield funds in 2016.
“Floating-rate loans provide the opportunity
to escape the negative effect of rising rates
on most other bond positions – whether it’s
emerging markets or high-yield, or investment-
grade,” said Chris Remington, institutional
portfolio manager at Eaton Vance.
The Federal Reserve is expected to hike rates
three times this year, as it did last year, based on
an upbeat economic outlook, a Reuters poll of
Wall Street banks suggested.
Consumer prices posted the biggest increase
in 11 months in December. That, along with
a US$1.5trn package of tax cuts signed into
law last month by President Donald Trump,
reinforces the view that inflation will accelerate
this year.
“Retail demand definitely has room to pick
up in this asset class in 2018 because valuations
are pretty extended in lots of other places,
and you have rising rates, a pick-up in inflation
expectations, lots of reasons why someone might
land in this neighbourhood (of loan funds),”
Remington said. “Floating over Libor is a good
place to be.”
Loan investors generally show a herd
mentality, which produces one-directional
flows with many months of unbroken inflows or
outflows before reversing. The market has beenseeing outflows since the summer, meaning
months of expected inflows when it reverses.
The next catalyst for consistent net inflows is
expected to be the Fed rate hikes, anticipated in
March and June.NEW RECORD
Bank loan yields of around 5% are currently
more attractive than high-yield bonds at 5.75%,
according to Adam Brown, senior portfolio
manager and co-head of high-yield at Macquarie
Investment Management, Americas.
“You’re only getting paid 75bp-100bp to
move down the capital structure from the senior
secured level of bank loans down to the mostly
unsecured level of high-yield bonds,” said Brown.
Loans are senior and secured, unlike high-
yield bonds, and rank higher in capital structures,
which typically provides for better recovery rates
in default situations.
Traditionally, the spread differential would
be wider, often 150bp, Brown said, to better
compensate bond investors for increased risk.
“We would make the argument that you are
not getting paid appropriately to move from
loans to high-yield, and be impacted by higher
levels of volatility that you could see in the high-
yield market.”
Strong demand from retail investors combined
with heavy purchases by CLO funds took US
leveraged lending to a new record in 2017.
Leveraged lending surged 62% to about
US$1.33trn last year. Net new supply was
constrained, however, with repricings and
refinancing accounting for two-thirds of the
volume.
Robust demand for available floating-rate
assets allowed most deals to sail through the
market in 2017, and helped borrowers to lock in
more favourable terms before further rate rises.
CLOs may be heading for a record year in
2018, with institutional investors looking to build
floating-rate exposure as a hedge for rising
interest rates.
Lynn Adler
(Additional reporting by Kristen Haunss)