Leveraged loans rush for pre-summer slowdown allocations
A clutch of loan deals have commitments due over the next week, as the market looks to allocate debt before the anticipated August slowdown.
Foncia, the French real estate firm, had recommitments due on Monday evening for its €803m term loan 'B'. This was after the firm tightened pricing to 450bp over Euribor with a 0% floor from guidance of 475bp-500bp offered at 99.5, and finally again on Wednesday to 425bp at 99.75.
“The Foncia deal was hugely aggressive as it was,” a loan portfolio manager in London said. “But then they tightened it again, which was pretty unexpected.”
The loan was eventually increased to €828m in allocation on Thursday afternoon.
The debt backs Foncia’s acquisition by a Partners Group-led consortium.
The investor added that he thought the ECB’s corporate bond purchasing programme and the need for CLO managers to ramp up warehouses was pushing investors too vehemently toward credit assets.
“The market feels very superficial at the moment,” he said.
US packaging firm Coveris had commitments due on Friday for its $350m refinancing loan, tightening from guidance of 375bp, offered at 99-99.5, to 350bp over Libor/Euribor at 99.51 with a 1% floor.
And US laser manufacturer Coherent had commitments due on Thursday for a €675m term loan ‘B’ backing its acquisition of Rofin-Sinar.
BB-rated Coherent followed Foncia in tightening pricing, to 350bp over Euribor from 375bp, with a 0.75% floor down from 1%, offered at 99.25 instead of 99.
Two 25bp margin step-downs were also subsequently included, related to gross leverage falling 0.75 times to 1.5 times post-deal leverage.
“By the end of this week the issuance window closes,” said an investor in London. “You never know but I don’t expect this year to be any different.”
Another portfolio manager in London echoed this, and said issuers were “racing ahead pre-August”.
Deals with commitments due after this week include Czech security software firm Avast on August 7 for its $1.6bn loan package, as well as German pharmaceuticals firm Riemser for its €256m dividend recapitalisation term loan on August 1.
Industrial services provider Bilfinger also launched its €1.25bn loan package this week, backing EQT’s acquisition of its real estate management business.
The deal had bank meetings on Tuesday for a €700m term loan 'B', guided at 550bp over Euribor with a 0% floor offered at 99, and a €550m revolving credit facility. (See separate story).
“We declined it as I’m not sure anything with UK property exposure is a great idea right now,” the first investor said.
All those GlobalCapital spoke to said they were surprised how well the primary market had recovered since the Leave vote. A senior levfin banker said he counted more than 10 deals live in the market.
"The week after Brexit was quiet, as people weren't sure which way markets would go," he said. "But since then, especially for non-sterling heavy credits, it's been resilient."
A possible hindrance, however, for leveraged loan issuance in the second half of the year is the return of single-B credits to the European high yield bond market.
There has now been as much single-B issuance in the four weeks following the Brexit vote as in the first two months of the year, when wider credit market volatility blighted markets and sidelined weaker credits.
And the attraction may continue. For the year so far, European high yield has made a total return of 5.24%, according to CreditSights, in stark contrast to the Stoxx 600’s 5% loss, and notably more than the S&P European Leveraged Loan Index’s 1.49% return.