April saw the leveraged finance market spring back into life, as borrowers seized on calmer markets and pent-up investor demand to do deals.
(Bloomberg) — April saw the leveraged finance market spring back into life, as borrowers seized on calmer markets and pent-up investor demand to do deals.
Recent issuance of loans and high yield bonds in Europe made for the busiest two-week period since February last year, according to data from Goldman Sachs Group Inc. And in the US, there’s been more than $22 billion in loans launched by companies this month, compared with just $8 billion in March, according to data compiled by Bloomberg.
The deals come as firms seize on less volatile conditions in bond and loan markets after the collapse of Silicon Valley Bank and forced takeover of Credit Suisse Group AG roiled sentiment last month. Loans have recovered some of the losses experienced during February, with secondary prices rising in April, while a dearth of issuance has also created pent-up demand from investors with cash to put to work.
At the same time, borrowers are conscious that the calmer mood may not last. While leveraged loans tend to be floating-rate, and therefore not as directly affected by changes in interest rates, a spate of central bank decisions in May carries the potential to upset markets again.
“Borrowers are taking advantage of the window being open and we expect the market will remain constructive in the near term,” said Dominic Ashcroft, head of EMEA leveraged finance at Goldman Sachs, which has led nine deals in the region in as many days. “The recent volatility, however, reminds us that this supportive market environment can change very quickly.”
Much of the money now being raised is to refinance existing debt, but there’s also some new issuance to fund acquisitions and, notably, the return of loans used to pay dividends — a sign borrowers are increasingly confident of investor demand.
Pharmaceutical company Cheplapharm AG issued a bond to fund its purchase of a portfolio of drugs, while auto repair services company Belron Finance used loan proceeds to pay a dividend.
Borrowers which shelved transactions in the wake of banking-sector turmoil have also had success in the current window. Agiliti Health, which withdrew a proposed loan sale in March, this week priced a $1.1 billion deal to refinance existing debt.
And in another encouraging sign, banks are showing their commitment to underwrite new deals, such as in the staple financing offered by Barclays Plc and Goldman Sachs for potential buyers of a stake in Rubix Group Holdings Ltd.
Deals are getting a good reception from investors, with some issuers able to increase deal sizes and others — such as US building products distributor GMS Inc. — tightening pricing and accelerating the timing of sales in what’s typically a clear sign of strong demand.
“For the deals that are coming to market, we’re seeing oversubscribed books as there’s a good amount of cash in the system,” said Kevin Foley, global head of debt capital markets at JPMorgan Chase & Co.
The swathe of deals in public markets also provides a moment of hope for banks, which last year lost out to direct lenders while they struggled to sell debt that was stuck on their balance sheets. Blackstone is now planning to replace private debt it secured for its acquisition of part of an Emerson Electric Co. business with a deal in the syndicated market — and it’s possible that more deals could go the same way.
Still, it’s clear to borrowers and bankers that the current window could close on a dime.
“I’d say the windows of opportunity feel like they’re narrower and the risk of bouts of volatility is higher,” said Foley.
–With assistance from Allan Lopez.
(Updates headlines at bottom of story.)
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