Last year, as loan issuance gradually picked up, corporate treasurers increasingly turned to institutional lenders for financial support as banks became more averse to risky lending in anticipation of Basel III’s more stringent regulations. An investment space once dominated by banks — at least in Europe — began to rely on another source of funding altogether.
And boy did it show. Term loan ‘B’s accounted for over €69bn of new issuance between January and November 2013, according to data provider Dealogic. That was 61% more than in the same period of 2012.
A similar trend has been at work from the very first days of 2014. Global term loan ‘B’ volume up to January 24 totalled $10.4bn, according to Dealogic — the highest year to date figure since 2007.
But institutional lenders, which include pension funds and insurance companies, want more and need more to invest in. No amount of new issuance nor old deal refinancing has managed to satiate their appetite. And competition is so stark for deals that borrowers have been able to push for ever tighter margins and higher leverage ratios.
Ziggo, a cable operator, has felt the allure of institutional investor financing perhaps more than anyone. Where the company once raised funds through different markets, including bonds — see its €750m senior secured note in March 2013 — it has now opted to raise a whopping €3.7bn exclusively from institutional loan lenders.
Its new term loan ‘B’, which launched last week, will rely on the support of investors from both sides of the Atlantic. Banks can only watch from the sidelines, as no bank lending has been requested.
If the deal proves successful, it will vindicate the growing confidence in term loan ‘B’s, and many more corporates will likely follow suit. In short, for confidence in the term loan 'B' model to grow further, Ziggo's transaction must perform.
All the signs so far are pointing to the deal going smoothly. As well as bankers on and away from the deal clamouring to explain that it will sail through the process, the attendance of around 150 investors the bank meeting in London last Tuesday shows there is no lack of interest.
Not since before the collapse of Lehman Brothers in September 2008 has an issuer opted for such a large term loan ‘B’. Ziggo's deal is in line with a growing sense of confidence in the rise of the European institutional investor base.
It is an idea that has gained momentum. A blowout Ziggo term loan could open the door to a full resurgence of institutional investor-only deals.