Refinancing deals swamp high yield and leveraged loan markets (Part 5 of 6)
Primary market activity in leveraged loans
According to data from S&P Capital IQ/LCD, the US leveraged loans market saw an allocation of $3.9 billion worth of senior loans across seven transactions in the week to March 6. This was 11.4% lower than the $4.4 billion priced in the week ended February 27.
The deal flow was also lower with seven transactions in the week, compared to ten in the previous week. Senior loans are tracked by the Invesco PowerShares Senior Loan Portfolio (BKLN) and the Highland/iBoxx Senior Loan ETF (SNLN).
The leveraged loans market saw heightened activity in February after a dull January due to the favorable market environment that month. Although deals continued to flow in March, it was the second lowest allocation in 2015 so far.
A decline in yields (TLT) and the possibility of a rate hike in light of positive economic pointers have encouraged issuers to take advantage of improved market conditions. They’re taking advantage of both the junk bonds (JNK) (HYG) and the leveraged loans space, specifically for refinancing and acquisition purposes.
Earmarks for proceeds from new issues
Of the proceeds from new issues priced in the week, three transactions were earmarked for refinancing and two for acquisitions and leveraged buyouts.
Noteworthy transactions
Hanson Building Products’ package of $1.04 billion was the largest deal of last week. The pipe and precast pipe producers’ three-part loan package included the following:
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$150 million Asset-Backed Lending (or ABL) rated B1/B
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$635 million 1st-Lien seven-year Cov-lite Term Loan rated B1/B and issued at LIBOR + 550 basis points with a LIBOR floor of 1.00% and an OID of 97.5
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$260 million 2nd-Lien eight-year Cov-lite Term Loan rated Caa1/CCC+ and issued at LIBOR + 950 basis points with a LIBOR floor of 1.00% and an OID of 95
The company plans to use the proceeds to finance its LBO (leveraged buyout) by private equity firm Lone Star Funds. It raised a similar structure of loans in the week ended February 13, 2015.
Energy Transfer Equity LP (ETE) provides energy-related services through its subsidiaries such as Energy Transfer Partners (ETP). It issued leveraged loans worth $850 million as Term Loan B. The five-year loan was rated Ba2/BB, and was issued at LIBOR + 325 basis points with a LIBOR floor of 0.75% and an OID of 99. The lead arranger of the issue was Credit Suisse (CS).
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