LPC: Investors brace for repricing wave as secondary prices soar
By Jonathan Schwarzberg and Lisa Lee
NEW YORK, Sept 15 (Reuters) - Rising secondary prices have prompted a new repricing wave in the US leveraged loan market, leaving investors to deal with the pain of reduced yields as issuers line up to take advantage of lower borrowing costs.
Secondary loan prices have risen since they bottomed in February and the most liquid batch of loans have reached 12-month highs. Demand has strengthened due to the anticipation of rising interest rates, while investors have additional cash to put to work after an influx of redemptions among several large names, including Cablevision and Allison Transmission, which are switching out loans for bonds, and Dell, which is paying down a portion of its term loans.
The average bid in the SMi100 (the 100 most widely held loans) reached 98.97 on Wednesday, according to LSTA/Thomson Reuters LPC MTM Pricing. That is more than 2 points up from 96.59 six months ago and even more from 95.3 at the end of February. The average bid in the overall market has also been strong, climbing to 96.79 on Wednesday, a robust gain from 94.84 six months ago and from 94.4 during the gloomy days of February.
"Investors are generally in the mode of wanting to maintain exposure and not generate repayments," said a banker. "We are seeing a very high percentage of rollover demand and additional appetite coming from both new and existing holders."
HOW LOW CAN YOU GO?
Those toppy prices have already lured companies to launch repricing deals, and more are expected. The main question in the loan market is how much issuers will be able press their case - whether investors will bear a 25bp, 50bp, or 75bp cut to their spread. The first issuers to the market should serve as a bellwether of just how amenable investors will be.
Golf club operator ClubCorp is looking to cut 25bp from the spread of a US$675m term loan due in December 2022. This would bring the price to 300bp over Libor with a 1% floor after just issuing in December 2015.
American Airlines is aiming to cut pricing by 25bp to 250bp over Libor on a US$750m seven-year term loan that it arranged in October 2014. Surgery Partners is a bit more aggressive, asking investors to lower the price on an US$870m term loan it arranged in July 2014 to back its buyout to 375bp over Libor with a 1% floor from 425bp over Libor. Continuación...