Leveraged loan terms have never been better

A slump in syndicated loan activity in Asia has put pressure on banks to offer juicy terms to borrowers seeking leveraged deals, including lower pricing and weaker structures. But the dearth of issuance won’t last long, leaving just a short window for borrowers to take advantage of.

  • By Pan Yue
  • 03 Sep 2019
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Loans bankers in Asia have been complaining about a quiet market for much of this year. The volume of international syndicated deals in Asia ex-Japan dropped to $160bn year-to-date from the $194bn raised during the same period last year, according to Dealogic. This has pushed bankers to look more actively at financing leveraged deals, hoping to find some assets with better returns.

That increased focus on the leveraged loan market has heated up competition. Banks are chomping at the bits for top-level mandates and are being forced to claw their way to a spot on a list of underwriters by offering generous terms to borrowers.

Bankers reckon that although pricing has increased for investment grade companies this year, but leveraged finance deals have benefitted from the slowdown in the global economy and market volatility, and are being priced tighter than usual.

Additionally, the structures of these trades have also become looser. Lenders have done a 180 from their previous position of only feeling comfortable underwriting deals with full covenant packages, to being happy with just a couple of covenants and offering companies more flexibility in their future operations.

Not only that, but borrowers are even able to push for loose financial covenants that leave next to no restrictions on their businesses.

But as with everything, these favourable conditions for leverage finance loans and refinancing will not last forever. Companies that have refinancing needs in the leveraged finance sector should act quickly to benefit from these market conditions, because once deal volume picks up — which is inevitable — banks will revert to their old habits.

In fact, there are already signs that deal flow is picking up, with bankers preparing a couple of potential transactions.

Philippines’ Metro Pacific Investments is planning to sell a 40% stake in its hospital unit, which could be valued at up to $2.5bn. Last month, private equity firm KKR acquired a 70% stake in NVC Lighting Holdings’ China Lighting Business for $794m, and private equity firms CVC Capital Partners and HPEF Capital Partners are considering selling Asian serviced office provider Executive Centre at a valuation of more than $750m.

More activity will come from similar exits from other private equity firms too. Many bankers told GlobalCapital Asia that PE firms are actively seeking exits this year, triggered by their fear that a recession is on the horizon. One Hong Kong-based banker said that he is speaking to a company about a potential sale, just one year after the PE firm acquired the asset.

The market will also be boosted by the slew of refinancings set to come, as 84 leveraged finance and M&A-related deals in the region, worth a total of $40bn, are maturing within the next two years, according to Dealogic.

If and when they do hit the market, loans bankers are likely to be spoilt for choice, giving them more ammunition to set bank-friendly terms on those transactions.

With that wall of potential deals coming, there is pressure on borrowers to refinance their loans sooner rather than later, when pricing and structures are still in their favour. As is always the case in capital markets, these favourable issuance windows rarely last long.

  • By Pan Yue
  • 03 Sep 2019

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 Bank of China (BOC) 23.56
2 Industrial and Commercial Bank of China (ICBC) 16.09
3 China Merchants Securities Co 11.38
4 Agricultural Bank of China (ABC) 6.90
5 HSBC 5.75

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 10,410.71 44 7.35%
2 CITIC Securities 10,076.72 56 7.11%
3 UBS 8,138.26 58 5.75%
4 Morgan Stanley 8,137.73 53 5.75%
5 China International Capital Corp Ltd 7,763.69 49 5.48%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 25,922.76 226 8.43%
2 Citi 20,478.62 144 6.66%
3 JPMorgan 15,342.51 106 4.99%
4 Standard Chartered Bank 13,964.21 139 4.54%
5 Morgan Stanley 11,315.38 77 3.68%

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