NEW YORK Aug 28 Two acquisition deals expected to contribute nearly $9 billion in new term debt to the U.S. leveraged loan market brought summer to a close and optimism to bankers hoping the pipeline will continue to build in September. Bankers and investors alike said there are a slew of new deals in the works, though when and at what pace they launch is anyone's guess.
Scientific Games will launch September 3 a $1.735 billion term loan that will fund in part the video game company's previously announced acquisition of rival Bally Technologies. Bank of America Merrill Lynch, JP Morgan and Deutsche Bank have provided committed financing for the $5.1 billion takeover. In addition to the incremental acquisition term debt, the financing will include an amendment and refinancing of Scientific Games' existing $2.284 billion term loan and $300 million senior secured revolver. A $350 million senior secured incremental revolver and $3.45 billion in secured and unsecured notes round out the financing.
U.S. fast food giant Burger King is also expected to tap the loan market, but has yet to set a launch date. The company said last week it planned to raise a $500 million revolver and a whopper-sized $6.75 billion senior secured term loan B to fund a portion of its newly inked tie-up with Oakville, Ontario-based coffee and donut chain Tim Hortons Inc.
The pipeline is building and the market will be busy, but there will not be an onslaught of deals, said one banker. Rather, arrangers will strategically place new launches in September and there will be some "water-testing" as bankers gauge investor appetite.
"I think right after Labor Day it will be a little slow, but after a summer lull things can come together pretty quickly," said one loan investor. Though a couple of wild cards still remain, he added.
Most notably on the supply side, whether or not Dollar Tree Inc's $8.5 billion bid for Family Dollar Stores Inc is successful. And on the demand side, will retail investors continue to pull money out of bank loan mutual funds, or could the fund flows turn positive once again?
"Although the loan asset class is still struggling with persistent retail outflows, we continue to believe that the net technical is solidly positive when accounting for CLO creation and expect the average loan price to rebound," Barclays analysts wrote August 22 in a report.
"Furthermore, if the balance in the debate among Fed officials on the timing of rates increases begins shifting to an earlier date, we expect retail sentiment to turn positive once again," they continued.
The U.S. loan market is fresh off a brief period of market volatility that saw secondary market prices soften and a raft of loans sidelined or withdrawn entirely when borrowing costs increased as investors demanded more pricing and tighter structures. That disruption, which has since dissipated, came just as the market slowed as it typically does in the second half of August.
Now, with secondary loan prices having stabilized and loan investors still hungry for assets, packaging unit Bioplan and cable company Charter Communications Inc could revisit the loan market in September, further contributing to supply. Bioplan tabled a $585 million spinoff loan after previously raising pricing to attract investors and Charter needs to raise an additional $3.9 billion to buy Time Warner cable assets after it scaled back its proposed $7.4 billion institutional loan by half in the face of higher financings costs.
"Reasonably good new issue supply will be met with reasonably good demand," said the loan investor. A huge injection of new loans right out of the gate, however, would be a lot of paper for the market to absorb, he said. (Editing By Jon Methven)