August 10, 2018 / 2:11 PM / 5 days ago

Leveraged loan deals in market hold key to post-Labor Day appetite

NEW YORK (LPC) - Bankers and investors are looking to payment processor Verifone’s buyout financing and a deal backing healthcare data analytics provider Verscend’s acquisition of payment accuracy provider Cotiviti to set the tone for leveraged loans when bankers return to work after the Labor Day holiday in the US, according to several bankers and investors.

Despite a firmer sentiment, the bifurcation that took place in May and June prompted by a spike in deal supply continues, leading to significant interest for strong credits and meager demand for issuers with perceived credit weaknesses.

How these two deals fare among investors is expected to bring more clarity on how the leveraged loan market will absorb new transactions starting as early as September. The leveraged loan market serves below investment-grade borrowers and has grown in size to more than US$1trn.

After tapping the market on July 24, Verifone, was able to firm pricing on its $1.95 billion buyout deal, setting the US$1.75bn first-lien loan at 400bp over Libor versus guidance in the 400bp-425bp range and the US$200m second-lien loan at 800bp over Libor against guidance in the 800bp-825bp range. The company shifted US$100m to the first-lien side from the second-lien side during syndication.

Verscend, meanwhile, saw pricing widen to the 450bp-475bp over Libor range on the $3.165 billion first-lien term loan that initially went out to the market on July 31 in the 400bp-425bp range, according to investors. The loan received pushback on pricing due to high leverage, investors said.

Moody’s rated the loan B3 citing leverage of around 10 times.

Coming Soon

Large financings on the September slate include a $13.5 billion loan and bond financing backing private equity firm Blackstone Group’s acquisition of Thomson Reuters Financial and Risk (F&R) unit, as well as an US$8.05bn deal backing KKR’s buyout of physician services provider Envision Healthcare.

Private equity firm Apollo will also look to the credit markets to finance its US$5.6bn buyout of hospital company LifePoint Health after the summer.

These deals will hit the market in a different environment than issuers saw at the start of the year when buyout financing could be found in the 300bp-325bp range.

A banker said that an average buyout will now likely price in the 375bp-400bp range.

A portfolio manager broke it down to an expected range of 350bp-400bp over Libor for B2-rated deals and the 400bp-450bp over Libor range for B3-rated deals.

The portfolio manager said that her firm is very constructive on credit for the second half of 2018 and into 2019, especially with higher pricing, though concerns over potential trade wars could put a damper on US businesses.

“There’s only so far you can look forward into the future,” she said.

Investors added US$199.4m to loan funds last week, marking the fifth consecutive week of inflows, according to Lipper.

Despite the appetite and the heavy calendar, banks are expected to roll out the deals in a manner that will allow the market to digest the new supply.

“It feels to me like those deals will all be rolled out in orderly fashion,” the banker said. “It wouldn’t be smart as underwriters to bring them all out. It doesn’t feel like the calendar overall will overwhelm the market.”

Reporting by Jonathan Schwarzberg. Editing by Michelle Sierra and Chris Mangham

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