Leveraged loan market improves, some postponed deals return: Reuters

(Reuters) The improving tone in the U.S. leveraged loan market is helping banks to relaunch some deals that were stuck in the market at the end of last year, including a $550 million buyout loan for Web conferencing provider Premiere Global Services, although investors remain wary of highly leveraged deals.

Banks were unable to sell some loans in December as low oil prices, worries over China and fears of corporate earnings and rising defaults created turbulent market conditions. Banks chose to fund some of the acquisitions and hold the paper on their books instead of discounting the deals to sell in the hope that market conditions would improve.

The reappearance of Premiere Global Services’ loan and a $60 million add-on from dialysis services provider American Renal Holdings that was postponed last year and scheduled to launch Friday is raising hopes that banks will be able to sell more hung deals from late 2015.

These deals include a $5.6 billion loan and bond package backing the buyout of software provider Veritas. The deal was originally pulled in November due to difficult market conditions and banks funded the loan when the acquisition closed in January.

Three prior weeks of inflows into the U.S. leveraged loan market by retail investors is helping to stabilize the market, the issuance of U.S. Collateralized Loan Obligation (CLO) funds, which are the biggest buyers of leveraged loans, has resumed and equity values have improved, offering banks a window of opportunity to offload risk.

“Things have certainly opened up a bit,” a banker said.

Refinancing activity has resumed in the last two to three weeks and deals, including a $1.045 billion term loan backing payment processing company Global Payments’ purchase of rival Heartland Payment Systems, have been oversubscribed.

The fact that deals are now getting done boosted confidence sufficiently for Barclays, SunTrust and Macquarie to relaunch Premier Global Services’ loans Thursday, which include a $550 million six-year term loan and a $50 million five-year revolving credit facility for the company.

The financing included a $150 million second-lien term loan when it was first launched last November that was cut when private equity firm Siris Capital agreed to add $100 million of preferred equity to reduce leverage and make the deal more attractive. However, the financing was postponed altogether in December.


Although the tone is improving, the U.S. leveraged loan market is still wary of highly leveraged loans, particularly those with credit stories. A $4.75 billion term loan B for hard-disk drive maker Western Digital had to widen pricing on the dual currency term loans backing its $19 billion of flash storage provider SanDisk this week to clear the market.

The spread on Western Digital’s dollar and euro tranches was increased to 550bp over Libor and 525bp over Euribor respectively from 450bp-475bp after investors pushed back due to the deal’s leverage of more than four times, according to Moody’s and concerns over business forecasts, an investor said. Investors are also heavily exposed to the technology sector after a raft of deals in late 2015.

While there was sufficient demand to nearly double the euro-denominated tranche to the equivalent of $1 billion from $550 million, the dollar nominated tranche was reduced to $3.75 billion from $4.2 billion.

Bankers are drawing a distinction between deals that suffered due to market turbulence and those with checkered credit stories, which will be harder to place.

“If it’s only the market, then you probably found a price that cleared, but if it’s the market plus the credit, then you’re waiting for financial numbers,” the banker said. “For some of the deals that have been hung up for a while, the hope is financial performance will be able to show investors that banks were right about the deals and that they are working and generating cash flow.”

Other financings that have yet to reappear include the Veritas buyout, as well as postponed deals such as a $700 million credit facility supporting the buyout of eBay Enterprise and a $575 million credit facility financing OM Group’s buyout.

These deals could prove to be a harder sell as concerns over the financial prospects of the companies involved weigh heavy on investors in a buyers’ market, but some investors will be willing to start looking at these deals again if they can show an improvement in financial performance.

“We’re open to taking another look in some cases,” an investor said.

(Reporting by Jonathan Schwarzberg; Editing By Tessa Walsh, Michelle Sierra)