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Why dividend recapitalization is a hot spot for leveraged loans

Chanderlekha Nayar

Key trends in high yield bonds, Treasuries, and leveraged loans (Part 5 of 6)

(Continued from Part 4)

Weekly rush

Twenty-nine issuers came to market with an average ticket size of $603 million. This compares to the 18 deals that hit the leveraged loan market the previous week, with an average ticket size of $728 million. Despite investors’ concern on the aggressive deal pricing, a number of deals were oversubscribed in the dividend recapitalization and refinancing space, indicating solid reception. Well-regarded issuers with relatively stable credit ratings received a good reception, including the Federal-Mogul Corporation (FDML) and Visteon Corporation (VC).

Federal-Mogul Corporation (FDML) raised a $500 million four-year term loan and a $2.1 billion seven-year term loan for refinancing purposes. The $500 million deal was talked at LIBOR + 300–325 (300–325 basis points is the credit spread offered in the deal) and a 99.75 offer price. The seven-year $2.1 billion was talked at LIBOR+350–375 (300–375 basis points is the credit spread offered in the deal) and was offered at 99.5.

Both the tranches included six months of 101 soft call protections, meaning that issuer has an option to call off the bond after six months of issuance. Typically, when bonds are issued with a call provision, they offer a premium upon exercising the callable clause. This premium declines with each subsequent call date until it eventually reaches par. The four-year loan is expected to yield 4.13% to 4.39% to maturity, while the seven-year loan would yield 4.67% to 4.93%.

Another major deal that remained in high demand in the market was Visteon Corporation (VC), which accessed the market to raise an $800 million two-part loan to refinance debt and raise funds for an acquisition.

Leveraged loan forward calendar

The leveraged loan forward rolling calendar (April 2 to April 10, 2014) looks strong from a refinancing perspective. Of the 14 leveraged loan (BKLN) deals announced for next week, nine deals were in the refinancing space, while five deals were expected in the mergers and acquisitions (or M&A) and LBO space. Some of SEC-registered deals expected to access the loan market include Orbitz Worldwide, Inc. (OWW) and Libbey Glass (LBY). LBY is the leading producer of glass tableware products, with operations worldwide. It sought to raise a $400 million loan for refinancing, while OWW will tap the market to raise a $450 million refinancing loan. Orbitz Worldwide Inc. (OWW) is a worldwide online travel booking company.

Continue to Part 6

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