US risky loans face resistance from choice spoiled investors



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Investors are ditching the most risky US loans, demanding better terms, a sign that fund managers are becoming more discerning in the flow of deals.

Most of the deals still go through the market with unrestrained demand, while companies refinance old loans at minimal interest rates, and private equity groups load cheap debt to finance acquisitions. But the average price of new loans in July fell to 99.22 cents per dollar from 99.33 cents in June, according to S&P Global Market Intelligence, the biggest discount since December.

The forward loan calendar, showing the amount of debt that is still expected to be raised in the market, surpassed $ 50 billion this month for the first time since January 2020. The fall in price at the same time reflects the confidence of investors that as opportunities continue to appear, they may be more selective in their choice of deals.

“When the market is as busy as it is now and there are plenty to choose from, companies that are harder to tell need to offer better prices,” said Jeff Bacalar, head of leveraged lending at Voya Investment Management. “The deals are still being made. Someone is willing to take the risk. It just has to be at a better price. ”

The low-rated senior vice president of Worldwide last week borrowed $ 370 million to fund Platinum Equity, acquiring a majority stake in the holding company that owns the Singer and Viking sewing machine brands. The company had a record year 2020, according to S&P Global Ratings: the number of new people involved in sewing doubled during the Covid-19 isolation compared to a normal year.

However, ratings agencies and investors expect the opening up of the global economy to slow further growth. Doubts over whether the sewing craze would last ultimately pushed the loan price to 93 cents per dollar from 98 cents after lengthy three weeks of negotiations with the Bank of America bankers who were directing the deal.

“The company lacks meaningful scale and is focused exclusively on a mature industry that could return to subcontracting growth once global growth resumes,” S&P analysts said in a rating report.

Commercial roofing and cladding contractor Flynn Group also faced the rejection of an offered $ 300 million loan to finance share buybacks, dividend payments to owners and pay off debts. JPMorgan, which oversaw the syndication of the loan, ultimately reduced its size to $ 250 million, with the price dropping to 97 cents per dollar from 99.5 cents when it was first sold to investors.

Late last week, pharmaceutical company Alvogen Pharma borrowed $ 160 million. Jefferies bankers sold the loan at 96.25 cents per dollar.

Bank of America declined to comment. Platinum Equity, Senior Vice President Worldwide, Flynn Group, Alvogen, JPMorgan and Jefferies did not immediately respond to a request for comment.

John Gregory, head of financial capital markets at Wells Fargo, said that with so little resistance from profit-hungry investors for most of the year, banks had become “fearless” in their attempts to syndicate lower quality loans, and a handful of loans faced opposition as opposed to most of the transactions are still in high demand.

“Transactions that are difficult to handle in the marketplace do not have the creditworthiness people are looking for,” he said. “I think the underwriters might have gotten carried away.”


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