TRLPC: First Data deal unlikely to signal new repricing wave

NEW YORK, July 9 Wed Jul 9, 2014 3:36pm EDT

NEW YORK, July 9 (Reuters) - Payment processing company First Data Corp on Tuesday repriced more than $5 billion in loans by 50bp, saving over $25 million in annual interest payments.

One of the most popular trades last year in the institutional loan market, repricings have been relatively dormant with this year's volumes running at half of that realized for the same time period last year. The First Data trade, however, may not necessarily herald a resurgence in repricing activity.

The appetite for opportunistic repricing represented only 14 percent of the market during the first half of the year, compared to 22 percent for the same period in 2013, according to Thomson Reuters LPC data. Bankers instead have been showing investors other types of deals, including those from new borrowers.

"The pipeline is more weighted towards new credits," said Sarang Gadkari, head of U.S. Leveraged Finance at Bank of America Merrill Lynch. "It's effectively an opportunity to put money to work with issuers the market has not seen."

Repricings, which have the sole purpose of lowering interest costs without making other changes in lending terms, have been mostly replaced with acquisition-related financings with this loan category surging to 30 percent from 17 percent of new issuance, according to Thomson Reuters LPC data.

"Repricings typically occur when there is a lack of new supply," said Jon DeSimone, managing director at Sankaty Advisors. "So as retail investors retreat and the new issue collateralized loan obligation (CLO) market tries to run ahead of amortizing CLOs, we are seeing a better demand-supply dynamic which has helped push back repricing attempts."

The repricing slowdown coincides with retail investors pulling a net $6 billion from loan funds since April.

FIRST DATA DEAL

First Data successfully lowered the pricing on its $4.25 billion term loan due March 2018 and $1.008 billion term loan due September 2018. The transaction lowers the spread on the term loans to LIB+350 from LIB+400. Credit Suisse leads the deal.

Until the First Data deal surfaced, the market had not seen any successful repricing attempts since April. The withdrawal of retail buyers put CLO managers, who have helped raise over $35 billion in new vehicles during the second quarter, in the driver's seat when evaluating loan deals.

Whereas retail loan funds have more flexibility in buying loans, CLO managers are subject to a number of structural tests built into their vehicles that spur pushback on aggressive repricings.

"CLOs have return and technical constraints that help create a floor on acceptable leveraged loan pricing," said John Fraser, managing partner at 3i Debt Management. "Otherwise it is very difficult to make the CLO equity arbitrage work."

The First Data repricing deal may also be an anomaly, several portfolio managers point out. Investors, led by current majority owner KKR & Co LP, injected $3.5 billion of new equity into the company in June, allowing First Data to reduce its debt load and improve credit metrics. Maturities were not extended as part of the repricing effort, allowing CLOs facing loan maturity tests to hang onto their holdings without being forced into a sale and ensure broad investor participation in the deal.

"First Data is a well-followed name that may not be a good proxy for more repricings," said Scott Baskind, managing director at Invesco. "The company changed its capital structure as a prelude to this transaction unlike most repricing attempts."

The question of whether First Data ushers in a new repricing wave could be answered soon. Springer Science, which is owned by private equity firm BC Partners, announced on Wednesday an attempt to reprice the dollar and euro portion of its buyout loans originally priced last year.

(Additional reporting by Lisa Lee.) (Editing By Lynn Adler and Jon Methven)

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