Record spread tightening in the leveraged loan market is spurring issuers to decrease the size of bond deals and increase the amount of bank debt they are taking on, according to Corporate Financing Week, an LMW sister publication. The average spread on single-B names has rallied 38 basis points over the last few months to LIBOR plus 275 basis points, which is the tightest ever in the loan market.
"The bank debt market is so attractive that people are increasing the sizes of the bank deals and lowering the size of their high-yield deals," said Michael Meyer, head of leveraged finance at Banc of America Securities.
Currently in the pipeline is a $315 million bond deal from Loews Cineplex Entertainment which was originally slated for $415 million. The $100 million difference went to increase the bank debt-portion of the leveraged financed deal. Credit Suisse First Boston and Citigroup are the managers on the deal. Another recent example is NCL, the cruise line operator, who dropped its July 8 senior notes sale from $350 to $200 million, while increasing its commercial lending facility to $800 million.
Other examples include Foundation Coal Corp., which lowered its July 21 offering by $35 million to $300 million and increased its commercial borrowing by the same amount, and Medical Device Manufacturing, which dropped its $190 million deal to $175 on June 23. CSFB was a lead manager on both deals, and worked with Citigroup on the Foundation sale.