Debt refinancing dominated U.S. leveraged lending in the first quarter, according to data collected by Thomson Reuters LPC, a sister service of peHUB that tracks the loan market. Refinancings include dividend recapitalizations to pay dividends to sponsors as well as straightforward refinancings designed to lower a borrower’s interest rate or extend debt maturities.
With $78.8 billion of volume, the level of refinancing was the second highest in the history of the dataset, behind only the second quarter of 2007, the data show. The LPC data date to the first quarter of 2003. Anecdotally, buyouts shops were reported in the current quarter to have undertaken a wave of dividend recapitalizations on portfolio companies, taking advantage of low interest rates and generous lender terms, including a number of covenant-lite deals.
Among the portfolio companies refinancing their debt during the first quarter were the children’s retailer Gymboree Corp., taken private last fall by Bain Capital, which refinanced an $820 million term loan; the fast-food chain Dunkin’ Brands, backed by a consortium including Bain Capital, The Carlyle Group and THL Partners, which repriced a $1.25 billion term loan made just in November; and the real estate company Realogy Corp., taken private in 2007 by Apollo Management, which refinanced a $2.5 billion senior secured term loan to complete a complex reworking of the capital structure of the troubled real estate company.
On the recapitalization front, the quarter saw Clearlake Capital Group LP lead a $135 million recapitalization of Platinum Energy Solutions Inc.; Main Street Capital Corp. of Houston complete a $7.5 million recapitalization and growth financing for Pegasus Research Group LLC, which does business as Televerde; and Platinum Equity and Littlejohn & Co. recap automotive equipment and accessory maker Keystone Automotive Operations Inc. to reduce its outstanding debt by $295 million.
Refinancings in the quarter amounted to 62 percent of total leveraged loan volume of $126.2 billion. That is five-eights of all leveraged-loan volume, more than new M&A volume and all other new lending combined. As a point of contrast, in Q2’07, that record quarter for refinancings, refinancing volume was just 36 percent of the $219 billion total. As the chart at left shows, LPC breaks out three categories of leveraged lending: refinancing of existing debt, “new-money” loans for M&A activity, and “other new-money” loans, for purposes such as working capital.
In fairness, Q2’07 was the busiest quarter for leveraged lending ever, the peak of the mid-decade LBO boom. And there have been times when refinancings were a higher percentage of total loans; in Q2’09, near the nadir of the financial crisis, just about nothing other than refinancing was going on. Refinancings then accounted for 83 percent of the $71.7 billion total.
Lenders pushed back toward the end of the quarter, however; LPC reported that more than $17 billion in leveraged refinancings were pulled from the market since March 10.
Steve Bills is a senior editor at Buyouts Magazine. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at firstname.lastname@example.org.