Why the deals in the leveraged loan market favor the investors

Chanderlekha Nayar

Must know: The weekly high yield bonds and leveraged loans update (Part 5 of 8)

(Continued from Part 4)

Mixed deals

Last week, the total number of deals went up by 16% to 22 deals from 12 the previous week. The average deal size was approximately $841 million. Much like the previous week, repricing, M&A, and dividend recapitalization continue to drift the market. The resistance around repricing deals continued on a similar note to that of the previous week, where investors were quite disappointed with aggressive deal terms. However, last week favored the investors, as many issuers agreed on to soft call protections demanded by investors. Soft call protection is a sweetener added to increase a security’s attractiveness. If issuers decide to redeem the issue early, a premium needs to be paid to investors to bear the loss in the interest amount that would otherwise have yielded, if the loan was held until maturity.

Most of the repricing deals were privately transacted, however, some big names that got the attention was Station Casinos, American Capital, Ltd. (ACAS), and Greektown Holdings, L.L.C. issuers’ activity on the M&A front was relatively strong with big names such as Mallinckrodt Pharmaceuticals (MNK) (which produces specialty pharmaceutical products including generic drugs and imaging agents based in Dublin, Ireland with U.S. headquarters in St. Louis, Missouri) came into the market to raise $1.3 billion to finance a portion of its acquisition of publicly-held Cadence Pharmaceuticals, Inc. (CADX). Dividend recapitalization deals remained burly despite investor confrontation on the pricing.

The S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks loans in the B to BB rated category, declined moderately last week, while the main leveraged loan ETF price (BKLN) remained unchanged.

Continue to Part 6

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