US leveraged-loan issuance skyrocketed in July as junk-rated borrowers flocked to the market largely to reprice debt, saving companies millions in interest expenses.
July set a fresh record with $222.2 billion in loans launched, surpassing the prior $206.7 billion high set in January, according to data compiled by Bloomberg. During the month, more than 180 new leveraged-loan tranches came through the market, the data showed.
Managers of collateral loan obligations and exchange-traded funds that buy leveraged loans are flush with capital. An ongoing buyout drought means there’s been a dearth of new loans to invest in, so much of the activity has been centered around refinancing or repricing existing debt, or sometimes paying dividends to private equity sponsors.
There has also been elevated demand for floating-rate debt like leveraged loans because of uncertainty around the Federal Reserve’s interest-rate stance. The US central bank on Wednesday shrugged off pressure from the White House to cut its rate target and instead held it steady.
The overall supply-demand dynamic allows issuers to push for more favorable terms and tap the market repeatedly to rework their debt even if their credit quality isn’t the best.
Some of the deals that leapt into the market in July were hold-overs that got scuttled or delayed due to tariff-related volatility. After President Donald Trump announced sweeping levies on April 2, markets for new issuance all but shut down for several weeks.
For instance, the financing tied to Patient Square Capital’s acquisition of Patterson Cos. got stuck on banks’ balance sheets during the tariff turmoil but they were able to offload $2 billion of that debt in July.
There were also a number of deals that brought financing over from private credit into the broadly syndicated market, cutting those companies’ interest expenses by even more than standard repricings. Vista Equity Partners in particular took advantage of the opportunity to shift portfolio companies out of costlier private loans, pricing new offerings for Finastra, KnowBe4 Inc. and Duck Creek Technologies Inc. last month.
A few notable acquisition-related leveraged loans priced in July as well.
Among them were debt backing Sycamore Partners’ purchase of Walgreens’ Boots unit, Acuren Corp.’s buying NV5 Global Inc. and FanDuel owner Flutter Entertainment Plc tacking on some debt partly to fund M&A. However, “new-money” issuance backing such transactions accounted for just 9% of all launches, according to Bloomberg-compiled data.
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