US syndicated loan issuance tumbles as confidence drops

NEW YORK, Jan 3 (LPC) - Trade wars, uncertainty about Brexit and a potential looming recession reduced US syndicated lending to US$2.11trn, an abysmal 20% drop from the prior record-year tally.

The slump extended through the year and in the fourth quarter, amounting to US$518.7bn, down from US$659.8bn in the same quarter of 2018, according to LPC, a unit of Refinitiv.

Despite capital being widely available from both traditional and emerging lending sources, corporate confidence dropped and potential buyers shied away from transactions. As a result, merger and acquisition volume slowed, which resulted in issuance of US$465.2bn, down from US$648.5bn in 2018, a 28% decrease.

A menial US$59.5bn in M&A volume accumulated in the fourth quarter, down from US$155.4bn in the same period of 2018.

The drop was pronounced in the investment grade side of the market where numbers trailed 2018 levels by almost 18% with US$193.42bn versus US$234.78bn. Lower activity occurred despite at least two mammoth-sized financings that made bankers optimistic for large transactions in the second half of the year that ultimately failed to materialize.

Morgan Stanley and MUFG in January 2019 provided a US$33.5bn bridge loan to support drugmaker Bristol-Myers Squibb Co’s US$74bn purchase of biopharmaceutical company Celgene Corp. Five months later, in June, the joint venture scored again with a fully underwritten US$38bn 364-day bridge loan backing US biopharmaceutical company AbbVie Inc’s US$63bn acquisition of Botox-maker Allergan plc.


Investor appetite for leveraged loans dwindled as the Federal Reserve began cutting rates in 2019. As a result, investors pulled money from loan funds in all but one week in 2019, according to Refinitiv Lipper.

While Collateralized Loan Obligation (CLO) issuance was strong last year, the influx of cash seen in previous years went missing from the US loan market. That additional bid – buoyed by a search for floating-rate assets when interest rates were rising – had previously allowed companies to cut interest payments.

As macroeconomic uncertainty made investors additionally wary, leveraged volumes hit US$807.85bn last year, down from US$1.24trn in 2018, or a 35% decrease went hand-in-hand with a slimmer number of transactions: 11,775 on the year with 440 in the fourth quarter.

A lower count of M&A transactions also characterized leveraged lending in 2019 with US$252.97bn in M&A transactions versus US$380.95bn in 2018.

While action focused on refinancings, refinancing numbers were also lower year over year leading to US$1.45trn in 2019 volume versus US$1.79trn in 2018.

As traditional middle market volume dropped to US$26.83bn from US$30.45bn in 2018, the year was characterized by the takeoff of private credit.

Middle market leveraged buyout deals rose to 128 in 2019 from 112.

“The theme for 2019 was private debt. The emergence or takeoff – it’s been a slow build after the financial crisis in ’08…and really started ramping in 2014 and 2015, creating an opportunity for private debt markets to be more aggressive in facilitating for issuers,” Grant Moyer, head of leveraged capital markets told journalists at an MUFG event in December.

Lenders and investors in syndicated loans expect that last year’s resolution of geopolitical events such as Brexit and the trade wars may bring in some corporate consolidation. They will remain watchful in the new year, however, as recent US action against Iran has paved the way for a new geopolitical volatility.

“We’re optimistic M&A activity will continue in 2020,” said Carolyn Kee, North American head of investment grade loan capital markets at Citigroup. “Capital markets are in good shape, and companies are comfortable that they will be able to access the market, so hopefully it will be more of the same.” (Reporting by Michelle Sierra. Editing by Kristen Haunss.)