Ancestry, Dunkin' Buyout Loans Lead Pre-Holiday Debt Sale Surge
Ancestry, Dunkin' Buyout Loans Lead Pre-Holiday Debt Sale Surge
(Bloomberg) -- Leveraged loans funding acquisitions of Ancestry.com Inc. and Dunkin’ Brands Group Inc. are marketing this week, as private equity firms dash to lock in cheap financing before the holiday season kicks off.
There are at least 13 loans for over $9.1 billion due over the next five sessions, with about 80% funding either buyouts or dividend payouts. That includes Inspire Brands Inc.’s $2.575 billion offering to help finance the acquisition of Dunkin’ Brands, and Ancestry’s $1.8 billion loan to finance Blackstone Group Inc.’s acquisition of the genealogical records provider.
Companies and private equity firms are hitting the market as average loan prices have rebounded to levels last seen in early March. There are two bank meetings scheduled for $1 billion next week, and the hot market could usher in another flurry of new issues before the end of the year.
American Bath Group LLC will also begin marketing a $335 million high-yield bond that will fund the buyout by Centerbridge Partners. The debt carries ratings in the riskiest CCC tier, which outperformed the broader junk-bond market last week. A $1.2 billion loan that’s part of the financing package is due Friday.
Borrowing costs for junk-rated companies hit an all-time low last week, fueled by progress on a Covid-19 vaccine and the prospect of a split Congress that may limit regulatory changes and tax increases. With U.S. coronavirus cases on the rise and shutdowns looming, more companies could try to sell more debt now while it’s still cheap to shore up cash.
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There’s also plenty of demand from investors to absorb any supply that may come from opportunistic borrowers. Junk-bond buyers poured $4.56 billion into retail funds during the week ended Nov. 11, according to data compiled by Refinitiv Lipper. It’s the seventh largest inflow into the asset class and the biggest since June. The prior week saw a net outflow of $2.2 billion. Bill Zox, a high-yield bond portfolio manager at Diamond Hill Capital Management, expects the demand to continue “indefinitely.”
“I find U.S. high yield to be one of the best markets globally to generate a yield well above inflation,” he said.
In the investment-grade market, Wall Street dealers are anticipating about $25 billion to $30 billion to price this week.
Verizon Communications Inc. led other high-grade borrowers in raising $41.3 billion last week, exceeding the estimated $30 billion. The largest U.S. wireless carrier sold $12 billion of bonds, the fifth largest transaction of the year, while Bristol-Myers Squibb Co. priced a $7 billion deal in six tranches.
In distressed debt, meanwhile, musical instrument retailer Guitar Center Inc. skipped bond payments last month, triggering a 30-day grace period scheduled to expire around Nov. 16 without a further extension.
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