n FRONT STORY US LEVERAGED MARKET
Jumbo deals push buyout loans over US$100bn
Two massive Single B deals for Refinitiv and Akzo Nobel hit market
Some US$18bn of loans in the pipeline
A pair of huge buyout loans backing deals
for REFINITIV, Thomson Reuters’ Financial and
Risk division that includes IFR, and AKZO
NOBEL’s chemicals business hit the
transatlantic loan markets after Labor day,
pushing year-to-date volume over US$100bn
along with other jumbo loans in the
pipeline.
US buyout volume of US$105bn so far in
2018 is showing a 32% increase compared to
the same time last year, according to LPC
data. The surge in new money deals has
grabbed investors’ attention and the buyside
is prioritising the huge deals over more
routine private equity lending.
“The true new issue in the market – not
just sponsor-to-sponsor deals or refinancing
deals – is great to see. I think most market
participants are very happy about that and
eager to see these transactions,” said
Jonathan Insull, managing director at
Crescent Capital.
An US$8bn-equivalent term loan B
backing Blackstone’s acquisition of a
majority stake in Refinitiv, which is the
biggest buyout since the financial crisis, is in
the market and is competing for investors’
attention with a roughly US$6bn-equivalentloan backing private equity firm The Carlyle
Group’s acquisition of Akzo Nobel’s
speciality chemicals unit.
The two massive Single B deals launched as
the markets get ready to mark the 10-year
anniversary of Lehman Brothers’ bankruptcy
filing on September 15 2008, which
contributed to the global financial crisis.
“It’s unusual to have two very large
marquee deals at the same moment, butneither set of bookrunners could wait any
longer. The good news is that they’re
coming in a more robust market than June,”
a London-based investor said.
Bankers and investors like both of the
huge buyout loans, which are carve-outs and
new money deals. Although the deals are
complex, carve-outs are some of the most
lucrative deals ever done by private equity
firms and investors expect them to be placed
with relatively few problems, other than
some haggling over pricing.
Yields for Single B issuers have widened
this year as supply increased and investor
demand failed to keep up, which
strengthened investors’ bargaining power
before summer.
Average yields for first-lien loans of 6.68%
in the third quarter are 43bp higher than
6.25% in the second quarter and 114bp
higher than 5.54% in the fourth quarter of
2017, according to LPC data.
Libor rates have continued to climb to 4%
in the third quarter, up from 3.74% in the
second quarter and 3.48% in the first
quarter, having quadrupled from 1% in early
2017, the data shows.
The large size of the deals and the fact
that they need wide market support may
give investors the upper hand in price
negotiations, but technical factors continue
to favour issuers as US CLO formation nears
record levels again. CLO issuance totalled
US$78bn until July, which is 29% higher
than the same period last year, and retail
investors continue to add money to loan
funds with nine consecutive weeks of
inflows.BIG PIPELINE
The volume of US leveraged buyout loans
completed so far in 2018 stood at US$87bn
on September 4, with US$18bn of loans in
the pipeline, the LPC data show.
In addition to Refinitiv and Akzo Nobel,
ENVISION HEALTHCARE is expected to launch a
US$5.05bn term loan to back its US$9.9bn
buyout later this month or in early October.
Financing for rural healthcare services
provider LIFEPOINT HEALTH’s US$5.6bn buyout
is also in the blocks.Banks are also preparing for a financing of
up to US$10bn to support a potential buyout
of JOHNSON CONTROLS INTERNATIONAL’s power
solutions business.Investors are predictably excited to see
the new money buyouts coming to the
market after a barrage of refinancing and
repricing deals in the first half of 2018 and
much of 2017.
In July, 86% of deals were new money
transactions, with 74% in August. These are
the highest levels seen since 96% in February
2016, according to LPC data. In August,
US$16.8bn of new money loans were
completed, of which US$11.2bn backed
leveraged buyouts.
So far this year, net loan issuance, which
does not include refinancing and repricing
activity, stands at US$210bn, which is 21%
higher than the same period of 2017,
according to JP Morgan.
The jumbo deals will help to keep spreads
elevated as investors have the opportunity
to choose between the new deals, as
opposed to simply buying loans to put their
money to use.
“In terms of the investment opportunity
set, I’m as excited about that as I’ve been in
many, many months,” Insull said.
This is an opportunity for investors, who
have seen spreads tighten until this year.
Yields on large corporate deals increased to
6.21% as of last month, up from 5.03% a year
earlier, according to LPC data, and are not
expected to drop soon.
“On pricing, they are going to try to
extract the max,” the banker said. “But
demand is not a problem.”
Jonathan Schwarzberg“In terms of the investment
opportunity set, I’m as
excited about that as
I’ve been in many, many
months”International Financing Review September 8 2018 67LOANS
Australia 68 China 68 Hong Kong 70 India 70 Taiwan 72 Germany 72 Ireland 73 Netherlands 73 UK 74
United States 74 Leveraged Loans 75 Restructuring 80“The true new issue in
the market – not just
sponsor-to-sponsor deals
or refinancing deals – is great
to see”9 Loans 2250 p67-80.indd 67 07/09/2018 18:55:10