Leveraged-Loan Launches Boom Thanks to Repricings, M&A Deals

(Bloomberg) -- Borrowers piled into the U.S. leveraged loan market last month despite equity and bond volatility. October was the busiest month for loan launches since May.

More than $73.4 billion of institutional loans launched in October, up from $40.6 billion in September. While an uptick in new money deals played a key role in fueling growth, repricings and refinancings accounted for nearly half the activity in the primary market.

Key Highlights

• New money launches -- those backing M&A, buyouts and dividend payments -- amounted to $36.3 billion, the most since July, on the back of financings for Sedgwick ($2.3 billion), Gray Television ($2.15 billion) and GFL Environmental ($1.71 billion)
  • This is up from $24.1 billion in October 2017
• Repricing volume rose to $22.4 billion in October, up from a lackluster showing of $9.2 billion in September
  • Down from $43.9 billion in October 2017
• Demand for leveraged loans remained strong, with $9.6 billion of new CLO issuance and inflows to mutual funds for all but one week in October
• Towards the end of the month, however, leveraged loans started to feel the downdraft from volatility in equities and high-yield bonds with secondary prices falling and more deals flexing pricing up in the primary market

Outlook

• Demand is expected to remain strong, with $111 billion of new CLOs already priced this year and Wells Fargo forecasting $125 billion of new issuance by the end of 2018
  • With the pipeline of mandated U.S. institutional loans tracked by Bloomberg shrinking to about $15 billion from $21 billion a month ago, there may not be enough new loan supply to satiate all the demand by CLO managers and other investors for the rest of the year
• Fitch Ratings is projecting a leveraged loan default rate of 1.5% by the end of next year, which is less than the 2% anticipated at the end of 2018

To contact the reporters on this story: Lisa Lee in New York at llee299@bloomberg.net;Lara Wieczezynski in Princeton at wieczezynski@bloomberg.net

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, Faris Khan, Kelsey Butler

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