September 28, 2018 / 4:40 PM / 2 months ago

Opportunistic loan refinancings follow success of jumbo deals

NEW YORK, Sept 28 (LPC) - At least six US companies launched opportunistic leveraged loan repricing deals this week after the successful conclusion of a trio of massive buyout loans revealed huge unsatisfied investor demand for floating rate assets in a rising interest rate environment.

Electronic market-maker Jane Street Group, retailer Men’s Wearhouse, chemicals company Vantage Specialty, and analytics provider JD Power & Associates are repricing existing leveraged loans to cut their borrowing costs. Internet security company DigiCert and financial data provider Dealogic also launched repricing transactions on Friday.

Despite raising US$21bn of loans, the three jumbo deals backing the buyout of Refinitiv, Thomson Reuters Finance & Risk unit, Akzo Nobel’s specialty chemicals group and outsourcing specialist Envision Healthcare closed heavily oversubscribed and flexed pricing lower.

The successful conclusion to the massive deals put repricing and refinancing transactions back on the agenda after stalling during the summer months. Spreads widened and secondary prices fell in June and July after a surge in supply gave investors the opportunity to push back against more aggressive terms.

The mammoth deals sold fast after the summer break, however, and investors were unable to get full allocations. Along with a limited forward pipeline, this left investors scrambling for opportunities to reinvest the cash. It could also open the door to more aggressive transactions in the run up to year end.

Floating rate loans act as a hedge against interest rate rises, and are in demand after the Federal Reserve increased interest rates this week for the third time this year to a range of 2-2.25%.

NEW DEALS

Jane Street launched the largest deal as it seeks a reprice a US$1.1bn term loan due in August 2022 to 300bp-325bp over Libor from its current rate of 375bp over Libor, according to LPC data.

Men’s Wearhouse is looking to cut pricing to 300bp-325bp over Libor while Vantage Specialty and JD Power circulated guidance in the 350bp-375bp. DigiCert is asking lenders to cut pricing to 400bp over Libor and Dealogic is requesting lenders drop the interest rate to 350bp over the benchmarks on a dual-currency deal.

Leveraged loans can be repaid at any time unless they have call protection, which generally runs for six months after closing. This allows borrowers to cut pricing on loans that are trading over par, as lenders are usually more willing to accept lower pricing than lose the credit in a straight refinancing.

Approximately 44% of leveraged loans are currently bid above 100 or par, according to LPC data, which is the highest level since June. The US secondary loan market has rallied since bottoming out at 23% on July 2.

Despite strong technical factors as excess demand pushes more loans over par, the market is not expected to return to the issuer-frendly pricing seen earlier this year when borrowers such as food services provider Aramark and tracking technology provider Zebra Technologies slashed term loan pricing to 175bp over Libor.

While deals are unlikely to reprice to 175bp, deals such as B2 credits priced at 375bp over Libor or higher might have some room to reprice, a banker said. This means that deals priced in the summer and even some of the recent jumbo loans could be back for rapid repricings when their call protection expires.

“I wouldn’t be surprised to see Refinitiv looking to reprice when call protection rolls off,” the banker said. “They paid a little bit of a premium for the size of the deal and will probably be able to drop that.” (Reporting by Jonathan Schwarzberg Editing by Tessa Walsh and Michelle Sierra)

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