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Buyout loans slump in secondary
Loans Around 24 of the 80 European leveraged loans completed in 2018 are quoted below 99BY TESSA WALSHA group of European leveraged
loans that were completed
earlier this year are trading
below their issue price and
weighing on the market after a
surge in supply in the early
summer helped investors to
secure higher primary loan
pricing from deals with stronger
documentation.
The primary market is now
pricing deals 50bp–75bp higher
and making concessions on
aggressive documents to
attract increasingly selective
investors. Deals that have been
launched in the last two weeks
at 350bp–400bp are now getting
done at 375bp–450bp,
depending on investors’ view of
the credits.
The powerful combination of
a wider choice of better priced
deals, cash to invest and the
ability to say no is making
primary deals look more
attractive than secondary for
investors.“Why wouldn’t you sell paper
at 325bp and a discount of 99.
to buy paper at 425bp with a
similar discount? If you can add
a new credit and boost your
spread, why not?” a senior loan
investor said.
Around 24 of the 80 leveraged
loans completed in 2018 so far
are quoted below 99, which is
generally still within banks’
underwriting fees of 1.5%-2%. Of
the deals completed this year,
64.56% are quoted at 99-100,
22.78% are at 98-99 and 1.27% are
below 97, according to Thomson
Reuters LPC data.
Five deals, including a £700m
sterling tranche and €475m-
equivalent Polish zloty tranche of
THEûõBNûlNANCINGûBACKINGû
KKR’s buyout of Flora Food Group,
are quoted below 98, which is
painful for lenders and investors.
Two February deals, including
a €2.285bn deal for Dutch
discount retailer Action
Nederland and a US$504m deal
for Swedish trading technology
provider Itiviti Group, are also inthis category, along with a
€920m loan for Spanish sports
group Imagina Media
Audiovisual in June.
Another February deal, a
€310m leveraged loan backing
5+ûmOWERûANDûVEGETABLEûSUPPLIERû
Flamingo’s merger with
!FRImORA ûISûQUOTEDûATû ûAFTERû
pricing at 575bp over Euribor
WITHûAûûmOORûANDûAûDISCOUNTûOFû
93 via lead banks Credit Suisse,
Investec and Jefferies.TROUBLE AHEAD?
While the rise in supply has
helped to rebalance the market,
which has been skewed in
FAVOURûOFûPRIVATEûEQUITYûlRMSûFORû
most of the last two years,
secondary prices are also
creating potential problems
going forward for deals that
investors view as aggressive.
This includes deals that were
agreed earlier this year but have
yet to be syndicated, such as the
US$13.5bn loan and bond
lNANCINGûBACKINGû"LACKSTONESû
acquisition of a 55% stake in
THOMSON REUTERS’ F&R business
(which owns IFR). The deal will
be formally launched when the
acquisition closes. That is
expected in September or
October.
“It’s tough because it’s a very
BIGûDEALû)ûDElNITELYûBETûTHATûITû
will either come with a discount
below par or trade there. I just
think it will struggle now due to
its size – it’s such an aggressive
deal and very leveraged, and has
SIGNIlCANTû%BITDAûADJUSTMENTS vûGoldman Sachs names Solomon CEO
People & Markets Blankfein’s departure leaves Dimon as last crisis-era CEO still standingBY PHILIP SCIPIOGOLDMAN SACHS named David
Solomon its new chief executive
OFlCERûEFFECTIVEû/CTOBERûûAFTERû
accelerating the departure of
long time CEO Lloyd Blankfein.
3OLOMONûWILLûGRABû"LANKFEINSû
other title, chairman of the
board, on January 1, 2019.
"LANKFEINûANDûRIVALû#%/û*AMIEû
Dimon of JP Morgan were the
last two Wall Street executives
standing who were around to
shepherd their banks through
THEû
ûlNANCIALûCRISIS
7ITHû"LANKFEINSûEXITûONLYû
Dimon remains. And while he has
set the stage for his exit with a slateof potential successors, he isn’t
expected to leave anytime soon.
And no one wants him out.
Goldman, however, is
clamouring to turn the page
from what it was pre-crisis to
what it will ultimately become.
Goldman named Solomon
sole president and operating
chief in March and said he was
likely to assume the reins as CEO
in 2019 on the 150th anniversary
OFûTHEûlRMû"UTûITûWASNTûFEASIBLEû
FORû"LANKFEINûTOûREMAINû#%/û
when everyone at the bank was
looking past him to the next
#%/û!NDû"LANKFEINûPULLEDûTHEû
plug on his plans to stay through
the end of the year.As Solomon takes the reins,
he is facing several challenges,
said Wells Fargo analyst Mike
Mayo. He has to better diversify
the bank’s revenue away from
its legacy strength in trading and
COMPLETEûTHEûINITIATIVEûTOûlNDû
US$5bn in new revenue. He has
to break down barriers within
Goldman to better serve clients
and has to get more of the right
people in the right spots to
ensure faster decision making
and responsiveness.
“Goldman has been slow to
adjust its strategy as the
environment changed,” Mayo
said. “Relative to its large US
peers Goldman has had theworst in class in trading equity
and FICC and that never should
have happened. To some degree
Goldman got complacent.”
The board is betting that
Solomon is the right man to
SHAKEûUPûTHEûlRMûANDûPOINTûITûINû
a direction where revenue is
more balanced.
Solomon joined Goldman in
1999, was global co-head of the
investment banking division
from 2006 and was named
president and co-COO in 2016.TIME’S UP
“I always knew this day would
COME vû"LANKFEINûSAIDûINûAûNOTEûTOû
Goldman employees. He hasSource: Thomson Reuters LPC99–100 ><97 97–98 98–5%65%
23%1% 6%SECONDARY LEVELS FOR 2018
BUYOUTS