(Bloomberg) -- US leveraged loan issuance is setting new seasonal records as buyout financing amps up and borrowers pursue opportunistic transactions like repricings while the market remains resilient and financing is cheap.
At least nine new leveraged loans deals launched Monday, along with five in the US high-yield bond market, according to data compiled by Bloomberg. Proceeds from two of the loan transactions were to support leveraged buyouts, while a pair of junk-bond deals were to fund acquisitions.
Dealmakers say that borrowers are tapping a resilient and strong market earlier than anticipated and the coming weeks will remain busy, according to people familiar with the matter who aren’t authorized to speak publicly.
“We’re going to continue to see stronger issuance trends. We’re getting back to a more normalized issuance after a really slow 2022 and relatively slow 2023 market,” said John McClain, portfolio manager at Brandywine Global Investment Management.
Monday’s LBO launches follow a $2.38 billion offering from last week to support KKR & Co.’s acquisition of sports apparel company Varsity Brands. Price talk for the deal calls for 400-425 basis points over the Secured Overnight Financing Rate offered between 99 and 99.5 cents on the dollar, Bloomberg previously reported.
Banks led by JPMorgan Chase & Co. are also selling a $2.3 billion loan-and-bond deal to fund R.R. Donnelley & Sons Co. purchase of marketing firm Valassis.
Both asset classes have favorable technicals that support issuers bringing deals to market. Despite political uncertainty, high-yield bond spreads have been hovering around 300 basis points for the past week, according to Bloomberg index data, while secondary prices in the leveraged loan market are stable around 96.6 cents on the dollar, according to the Morningstar LSTA US Leveraged Loan Price Index.
Borrowers that have been reworking debt to obtain better terms have helped to make this summer the busiest ever, according to data compiled by Bloomberg going back to 2013. Around $190 billion has been announced from June 1 to July 19 of this year, with around $164 billion earmarked for repricing and refinancing transactions, the data show.
A dearth of new junk-bond supply has made most investors buyers as returns have been attractive this year. US high-yield bond funds took in $2.64 billion for the week ended July 17, while leveraged loan funds saw inflows of $1.29 billion, according to LSEG Lipper data. So far this year, high yield has returned 4%, according to the Bloomberg US Corporate High Yield Bond Index, while the Morningstar LSTA Leveraged Loan TR Index has advanced 4.9%.
High yield stands out as an attractive asset class for investors who are positioning for the possibility of a second Donald Trump presidency, given the expectation of looser regulation and added tailwinds of higher tariffs that would benefit domestic manufacturers.
Encouraging economic data that shows slowing inflation has once again revived hope the Federal Reserve can begin lowering interest rates later this year. Traders are now wagering that the central bank delivers its first cut in September, according to data compiled by Bloomberg.
--With assistance from Gowri Gurumurthy and Andrew Kostic.
(Updates amount of Monday’s leveraged loan deals in second paragraph)
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