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Private Equity Firms Storm Leveraged Loan Market to Fund Payouts

Private Equity Firms Storm Leveraged Loan Market to Fund Payouts

Private equity firms are rushing to the leveraged loan market to line their pockets, pushing aggressive deals to fund payouts in a space that’s thin on new supply.

Five deals are underway to fund shareholder dividends, accounting for half of this week’s volume, and the most in a week since 2017, according to data compiled by Bloomberg. Sponsors are bringing the deals at a time when there’s not much else to buy and secondary loan prices are rallying, despite continued weeks of outflows.

The private equity firms are piling more debt onto their portfolio companies -- many of them in sectors more resilient to the pandemic like packaged food and broadband -- as lenders look for sound investments.

Salty snack maker Shearer’s Foods will see its debt increase to more than 7 times a measure of earnings with new loans, according to S&P Global Ratings. A $985 million first-lien loan, rated B-, will help majority owner Ontario Teachers’ Pension Plan recoup most of its initial investment in the business, according to S&P.

Cable provider RCN Grande Wave, owned by TPG, will see its leverage rise to a similar level, S&P said, after borrowing $1.19 billion in term loans and $2.25 billion in bonds. Some of those are rated CCC+, seven steps below investment grade.

In some cases, sponsors are also asking investors to loosen a key protection that allows the debt to stay in place even if the company is sold to another firm. Power generator Linden, is one such example, marketing loans with exemptions to the change of control provision.

KKR & Co. Inc. successfully played the portability debt maneuver this summer. The private equity behemoth wrangled a $560 million dividend in July from Epicor Software Corp. through a $2.75 billion loan, only to sell the company to Clayton, Dubilier & Rice the next month.

U.S.

The investment-grade and high-yield markets are continuing their issuance streak from Tuesday, with both still busy in the primary. Financial companies especially are prominent on the high-grade docket, including deals from DNB Bank and Caterpillar Financial.

  • For deal updates, click here for the New Issue Monitor
  • Electronic marketplace founder Jim Toffey says his latest corporate bond venture has only one real competitor: the telephone
  • Investors will now have their first chance to buy collateralized loan obligations through an exchange-traded fund
  • JPMorgan Chase & Co., the biggest U.S. bank by assets, is issuing bonds to finance environmentally-friendly projects for the first time
  • For more, click here for the Credit Daybook Americas

Europe

There were 11 bond offerings, amounting to at least 5.8 billion euros ($6.8 billion) of new debt from issuers including real estate firm CPI Property Group SA and Italian lender Credito Emiliano Holding SpA. Johnson Controls International Plc brought a two-part 1 billion-euro offering, a day after selling bonds in the U.S. market.

  • Also among the new deals in Europe’s primary bond market were South Korea’s first euro-denominated notes in more than six years and a sustainability bond from French telecoms company Orange SA
  • Central bank stimulus aimed at minimizing the economic fallout from the pandemic will limit any volatility in the market for high-risk debt triggered by a no-deal Brexit and a fiercely contested U.S. election, according to Kevin Foley, JPMorgan Chase & Co global head of debt capital markets
  • Higher-yielding assets are likely to be in demand for the rest of 2020 as investors become selectively more risk-taking, UBS strategists led by Stephen Caprio wrote in a note

Asia

Investment-grade issuers dominated the dollar bond market in Asia on Wednesday. In addition to South Korea, four other high-grade borrowers -- Transurban Finance Co., AIA Group Ltd., Linyi City Construction Investment Group Co. and Sumitomo Mitsui Trust Bank Ltd. -- are marketing debt deals

  • Another investment-grade firm, Guangzhou Metro Group Co. mandated banks for Reg S dollar bonds

©2020 Bloomberg L.P.