Refinancing and Jumbo Transactions Boost Global Leveraged Lending Market | White & Case LLP

Refinancing activity supports double-digit year-over-year increase in leveraged loan issuance in US and Europe, while mega-deals dominate in Asia Pacific

The leveraged loan markets in the United States, Western and Southern Europe, and the Asia-Pacific (excluding Japan) (APAC) region exhibited stable performance throughout the first half of 2021 as emissions stabilized at the time. that the economies were starting to reopen completely.

Global issue in value Q1 2019 – Q2 2021

Instrument type: Leverage loans Use of recipes: All
Site: Western and Southern Europe and United States Sectors: All sectors

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In the United States, leveraged loan issuance at the end of June 2021 climbed to US $ 763.5 billion, up 60% year-on-year from the total of US $ 478.1 billion recorded during the same period in 2020.

In Western and Southern Europe, leveraged loan issuance increased 16% year on year to reach US $ 185.5 billion until the first semester of the year. The main driver behind the increase was an increase in refinancing operations.

The sustained demand in the United States and Western and Southern Europe comes as borrowers who avoided refinancing unless absolutely necessary during the first waves of pandemic uncertainty – when prices widened for a short period of time. – are coming back to the market. According to By debt, this created a reservoir of debt issuers as a remedy.

APAC market stabilizes after a quiet start

In the APAC region, leveraged loan issuance saw a strong increase in activity in the first half of 2021 – in the second quarter of the year, leveraged loans reached US $ 12.9 billion, the region’s second highest quarter on By debt record dating back to 2015.

The value of syndicated and club loans in the region was flat, up slightly year-over-year despite declines in India, Indonesia and Australia, according to By debt. China, Singapore and Hong Kong, on the other hand, recorded double-digit year-over-year increases.

The overall leveraged and non-leveraged loan market in APAC saw its issuance in the first half of 2021 drop slightly to 164 billion US dollars compared to US $ 167.8 billion in the same period last year. The number of transactions fell 9% to 390 offers from 426 transactions in H1 2020.

China has been the cornerstone of lending activity in the region. The country generated transactions valued at nearly US $ 50 billion in the first half of 2021, up more than 40% year-on-year according to By debt and representing more than a quarter of all APAC emissions.

Large deals backed by tech giants Alibaba, Baidu and Tencent have supported growth in the Chinese market, accounting for more than a third of all Chinese emissions according to By debt. Alibaba closed a $ 6.5 billion loan maturing in 2026, Baidu obtained a $ 3 billion five-year loan in April, and Tencent obtained a $ 8.3 billion five-year loan in February.

This jumbo group of operations in China helped build momentum across the region in the second half of the year, with second quarter 2021 loan issuance up more than 30% qoq for US $ 93.4 billion.

Further decline in money business

Refinancing and repricing boosted activity at all levels. In APAC, loan refinancing and repricing (including leveraged and non-leveraged loans) increased from US $ 39.4 billion in the first quarter of 2021 to 60.9 billion US dollars at T2.

At the same time, new money credit issuance fell 7% year on year for US $ 63.3 billion in the first half of 2021, while M&A and buyout issues remained stable, over one year, at US $ 20.4 billion.

In Europe, refinancing activity also exceeded new money issuance. New leveraged loans in Europe are down 14% year-on-year, from $ 93.5 billion to 80.8 billion US dollars—Despite the overall increase in emissions. As of May 2021, refinancing accounted for more than half of overall lending activity in the region, according to By debt.

The strong appetite for refinancing observed in the European and APAC markets during the first half of the year mirrored the trends in the United States. Refinancing and re-pricing agreements in the country’s leveraged loan markets concluded US $ 471.7 billion at the end of June 2021, representing 62% of all loan issuance during this period and up nearly 80% year-on-year.

So far in the year, new money transactions in Europe have been dominated by a handful of large loans backing debt buybacks. In February, UK supermarket chain ASDA raised an 840 million euro B term loan as well as a large banknote offer to support its leveraged buyout.

Another LBO target, Danish timber retailer Stark Group, took out a € 1.35 billion B term loan. German real estate company Apleona and Swedish pharmaceutical contract developer Recipharm have secured B term financings of € 765 million and € 1.1 billion, respectively.

There are signs that refinancing activity in Europe could start to slow in the second half of the year. Over the course of 2021, pricing gradually increased, with margins on single B and double B loans at the start of the year rising to Euribor + 3.53% and Euribor + 2.58%, respectively, and rising at Euribor + 4.15% and Euribor + 3.18% by the end of May.

Prices did decline in favor of European borrowers in June, but it is less certain that the wave of refinancing that characterized the European market will continue in the second half of the year.

APAC focuses on ESG

In APAC, pricing has been less of a factor, but the region has seen a sharp increase in sustainability-related lending, following trends in the US and Europe where ESG factors rise or fall depending on the Lenders’ compliance with agreed ESG criteria – have become a more common feature in loan documentation.

The issuance of sustainability-linked loans in the APAC reached record levels in the second quarter of 2021 after more than quintupling from $ 1.69 billion in the second quarter of 2020 to $ 9.46 billion in the second quarter of this year.

Among sustainability lending highlights, Changi Airport secured a two-year US $ 2 billion club loan agreement in April and Australian private hospital group Ramsay Health Care signed a credit facility. A $ 1.5 billion multi-currency syndicated revolving fund. Australia was the most active jurisdiction for sustainability-related emissions, accounting for 53.1% of the market, followed by Singapore with a share of 29.5%.

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Priscilla C. Carnegie