| NEW YORK
NEW YORK Oct 7 Leveraged loan investors are
digesting a massive $37 billion in institutional loans issued in
September, leading to some softness in loan pricing and
backpedaling by issuers that had previously planned to come to
Average secondary prices have fallen about 24bp since the
Federal Reserve surprised the markets and held off on tapering
two weeks ago, to end at 99.3 as of October 4. The JP Morgan US
leveraged loan index yield to a three-year takeout increased to
5.53 percent from 5.46 percent over the same period.
Sources said that heavy new money issuance during September,
including computer maker Dell's benchmark $9.1 billion credit
backing its $25 billion buyout, and hotel operator Hilton's $8.6
billion refinancing credit, has led to the recent softness.
"I think it's just a little bit of settling in and digestion
of a very busy month, and luckily there's not a very big
calendar right now.
The technicals are still strong," said John Cokinos, head of
leveraged finance capital markets at Bank of America Merrill
The institutional leveraged loan forward calendar has
dwindled to $28.7 billion as of October 3, from $43 billion on
September 12, given that the heavy M&A and LBO primary calendar
post-Labor Day has mostly retreated to secondary markets.
Some new loan issuers are choosing to tiptoe out of the deal
queue, rather than combat skittish markets where CLO investors
and separate accounts have already used up significant cash.
Independent exploration and production company Samson
Investment extended the commitment deadline on its repricing
proposal on September 25, but ultimately chose to postpone its
effort to reprice a $1 billion term loan to LIB+400 with a 1
percent Libor floor, from LIB+475 with a 1.25 percent floor.
Data center operator Zayo Group pulled an effort to reprice
a $1.6 billion term loan B in late September. The company aimed
to reprice the TLB to LIB+300 with a 1 percent Libor floor, from
LIB+350 with a 1 percent floor. Investors saw that deal as
aggressive, given that the company just repriced this loan last
February, and prior to that, in October 2012.
Healthcare instrument concern Immucor Inc also pulled a $662
million repricing term loan B.
Debt ceiling concerns
Macro concerns, including the debt ceiling debate and the
current U.S. government shutdown, are exacerbating the September
supply issue, sources said.
"My phones have been very quiet," said one leveraged loan
With equity declines since mid-September and markets
softening broadly, sources said that these macro issues are
negatively impacting new issue commitments for leveraged loans.
However, these macro concerns weigh less on the leveraged loan
environment than on other asset classes, just as leveraged loans
and high-yield bonds had a more muted response to the Fed's
September decision to hold off on tapering versus Treasury and
high-grade bond markets.
"It still feels like there's technically a good environment
for loans. We're not overly concerned about prices falling,"
said the same trader, adding that stronger credits will still be
scooped up by investors.
For example, sources noted that Hilton (B1/BB-) was able to
attain step-downs in pricing on a $7.6 billion refinancing
TLB-2, taking advantage of prime rate funds and CLOs that are
attracted to higher-rated paper. The loan finalized at LIB+300,
with a 1 percent Libor floor at 99.5. Pricing includes a 25bp
step-down after the completion of Hilton's IPO, and a 25bp
step-down when net first-lien leverage is below 3.85 times.
Investor cash also may be replenished by billions of dollars
in institutional loan paydowns related to hospital operator
Tenet Healthcare's acquisition of rival Vanguard Health Systems,
and Actavis Plc's acquisition of Warner Chilcott to create a
global specialty pharmaceutical company.
For high yield bonds, the picture is less rosy, with
investors stating concerns over a technical redemption similar
to the bond outflows seen last summer stemming from rate
uncertainty and U.S. government default concerns. During June,
high yield bond mutual funds saw $15.6 billion in outflows.
One drive-by high yield bond issuer decided not to go
forward last week, due to concerns about the market, sources
Sources said that supply is expected to ramp up later this
month. High-end department store Neiman Marcus is launching a
$3.75 billion credit on October 7 to back the company's buyout
by Ares Management LLC and Canadian Pension Plan Investment