1Q17 M&A volume down 32% year over year as market waits on policy guidance out of Washington

M&A loan issuance declined dramatically year over year to log less than US$70Bn in 1Q17, down 32% compared to the year ago results (US$102Bn). This represented the lowest quarterly results since 1Q13. Although some of the market shortfall on a percentage basis should be qualified in that jumbo financings for Avago Technology and Kraton Polymers which were completed in 1Q16 were in fact structured in 2015, the market took a very real pause in 1Q17 as issuers waited on the new administration in Washington...

LBO purchase price multiples averaged 9.6 times in 1Q17

After averaging over 10 times for the past three years, the average purchase price multiple on LBO deals dropped to 9.6 times in 1Q17. A high concentration of smaller deals and a more diverse industry composition of LBOs in 1Q17 is a driver of multiples coming down so far this year. But lenders should not get accustomed to this trend. Lenders and sponsors confirm that lofty valuations continue to remain a major roadblock holding back a robust buyout environment this year...

Leverage on institutional middle market deals climbs on new money deals in 1Q17

Interest in middle market loans from large corporate investors tends to wax and wane based on market conditions, but currently investors are super receptive to these smaller credits given a supply demand imbalance in the leveraged loan market. As a result, leverage levels on institutional middle market deals are rising in 2017 across most deal purposes. Leveage on dividend recap deals peaked in 2013 at 5.3 times and was in decline through 2016 down to 4.3...

What is the #1 factor to winning a deal in today’s environment?

When asked to select the #1 biggest driver in helping them win deals in this increasingly competitive environment, middle market banks were mixed. According to Thomson Reuters LPC's recent survey, one quarter said it comes down to the relationship, especially in the non-sponsored market where issuers rely heavily on that long term relationship. Perhaps more surprising, only 4% of non-banks ranked reputation and relationship as the number one factor. One quarter of banks chose willingness to stretch especially with regard to sponsors who are often asking for large corporate term sheets on smaller deals. One fifth of non-regulated lenders agreed...

More middle market lenders expect to meet lending goals in 2017

Middle market lenders' outlook has changed a bit after coming off of a year where competition intensified and the majority of banks surveyed along with half of nonn-banks reported falling below lending goals. But, according to Thomson Reuters LPC's most recent survey, the share of those who expect to fall short again in 2017 is much lower. Only one third of banks and one fifth of non-banks don’t expect success, stating that continued competition and aggressive structures will hold them back...

Unitranche loses favor in 1Q17 as sponsors gravitate toward second-lien

A recent middle market lender survey revealed that sponsors are favoring the first­/second­ lien structure according to 42% of respondents. Meanwhile, in the survey carried out by Thomson Reuters LPC, 27% said the unitranche is the most favored structure by sponsors today. This is a meaningful departure from this time last year when half of the buyside and sellside survey respondents said sponsors preferred the unitranche structure. More onerous call protection, higher pricing and the need for covenants are typical of the unitranche...

Repricing wave will push institutional issuance close to quarterly record

Strong demand for floating rate assets has caused a frenzy in the leveraged loan market this quarter where issuers have been flocking to market to lower the spread on their institutional facilities. This has in turn caused institutional loan volume to spike, reaching US$149.5bn in completed issuance through February 15th. With roughly half a quarter remaining, completed institutional issuance is the fifth highest on record and about US$50bn lower than the US$199bn record set in 1Q13. Breaking down the numbers highlights the refinancing boom...

Covenant-lite volume will likely hit another record high in 1Q17

Covenant-lite loan volume has already reached US$90 bn in 1Q17 with two more months still left to go this quarter. With another US$35bn still in process, 1Q17 will likely be a brand new record high for covenant-lite issuance. Covy-lite volume had just hit a brand new record high last quarter at US$128bn, smashing the previous record set in 1Q14. These robust volumes are largely taking place during big refinancing waves like in the current environment...

Overall LBO leverage on the rise in 1Q17

Average leverage levels on both large corporate and institutional middle market LBO deals have shown a meaningful jump in 1Q17. With refinancings and repricings dominating the leveraged loan market, investors seem more willing to stretch on new money LBO deals. The average leverage level so far in 1Q17 is at 5.0 times first lien and 6.50 times total debt to EBITDA, up from 4.6 times senior by 6.1 times total last quarter...

Strong retail fund inflows help fuel the leveraged loan market

Investors have been pouring money into retail loan funds in recent months. This has helped fuel demand in the leveraged loan market. Last week, investors placed US$1.02bn into retail loan funds, the second time in three weeks the US$1bn mark was eclipsed. It was also the tenth week out of the last eleven that there was over US$500m invested in loan funds. With the increased demand in loans, it is no surprise the leveraged loan market has kept busy...