By Aaron Weinman
NEW YORK, March 3 (LPC) - Companies seeking to slash borrowing costs on roughly US$10bn of leveraged loans have pulled transactions from the market this week, as investors pushed back on opportunistic deals amid worries over the coronavirus epidemic stunting economic growth.
Pharmaceutical companies Bausch Health and Pharmaceutical Product Development (PPD), as well as British technology firm Micro Focus withdrew their loans from the market this week, according to three sources familiar with the deals. The decisions follow similar moves from safety firm Minimax Viking, gas firm Messer Group and energy company NorthRiver Midstream, which collectively yanked roughly US$5bn from syndication last week.
These borrowers, which looked to take advantage of favorable credit conditions last month to refinance existing loans, were blindsided by the growth of the viral outbreak and its impact on the corporate debt markets. Facing less-favorable rates and terms than expected, they chose to remove the transactions and await a more receptive market.
“Most of the are getting pushed because pricing has to reset itself, and the market has to determine where yields should be,” said Ryan Kohan, a portfolio manager at Western Asset Management.
Bausch Health, formerly known as Valeant Pharmaceuticals, withdrew a US$5.14bn term loan intended to refinance existing loans and payback outstanding bonds. PPD was seeking a US$4.1bn refinancing deal, and Micro Focus was shopping a two-part US$1.4bn transaction to refinance a loan due in 2021.
The virus, which originated in Wuhan, China, and has since spread across continents pushed leveraged borrowers to the sidelines after a tumbling stock market caused companies and lenders to reassess their appetite for risk.
Investors, concerned that the virus threatens global economic supply chains, have fled to safer government bonds. Loan funds saw a US$951.6m withdrawal last week, significantly higher than the US$164.7m pulled from funds a week prior, according to Refinitiv Lipper.
The US Federal Reserve cut interest rates by 50bp to a target range of 1%-1.25% on Tuesday, an emergency move aimed at shielding the country's economy from the impact of the coronavirus.
With interest rates falling, Sundyne and Kissner Group both embedded 1% Libor floors into their deals, and rushed through other lender-friendly changes to get their transactions over the finish line on Tuesday, banking sources said.
“Now is the time to push harder for Libor floors; investors have the leverage to do so given there is more volatility in the markets,” an investor that looked at both deals said.
Industrials firm Sundyne hiked the margin on a US$535m term loan by 50bp to 425bp over Libor and removed two 25bp step-downs from the deal to garner enough investor support. The company is raising the money to fund its buyout by private equity firm Warburg Pincus.
Salt supplier Kissner Group, which is raising a US$900m loan, also removed two 25bp step-downs and left its proposed margin at 450bp over Libor. The company is raising the debt to partially fund a buyout by Stone Canyon Industry Holdings.
BUYING THE DIP
With few new opportunities in the primary syndicated loan market, investors sense a chance to snap up loans in the secondary market, which has sunk as fears of the virus grow.
Average loan bids fell 86bp to 96.69 cents on the dollar in secondary trading on Tuesday, down nearly two points from a month earlier, according to Refinitiv LPC data.
Berry Global’s roughly US$4.25bn outstanding loan, for example, fell to an average bid of 98.625-99.125 cents on Monday after trading above par earlier this year. (Reporting by Aaron Weinman. Editing by Michelle Sierra and Kristen Haunss.)