Debt refinancing dominated U.S. leveraged lending in the first quarter, according to data collected by Thomson Reuters LPC, a sister service of Buyouts that tracks the loan market. Refinancings include dividend recapitalizations to pay dividends to sponsors as well as straightforward refinancing designed to lower a borrower’s interest rate or extend debt maturities.
With $78.8 billion of volume, the level of refinancing was the second highest in the history of the dataset, behind only the second quarter of 2007, the data show. The LPC data date to the first quarter of 2003. Anecdotally, buyouts shops were reported in the current quarter to have undertaken a wave of dividend recapitalizations on portfolio companies, taking advantage of low interest rates and generous lender terms, including a number of covenant-lite deals.
Among the portfolio companies refinancing their debt during the first quarter were the children’s retailer
On the recapitalization front, the quarter saw
Refinancings in the quarter amounted to 62 percent of total leveraged loan volume of $126.2 billion. That is five-eights of all leveraged-loan volume, more than new M&A volume and all other new lending combined. As a point of contrast, in Q2’07, that record quarter for refinancings, refinancing volume was just 36 percent of the $219 billion total. LPC breaks out three categories of leveraged lending: refinancing of existing debt, “new-money” loans for M&A activity, and “other new-money” loans, for purposes such as working capital.
In fairness, Q2’07 was the busiest quarter for leveraged lending ever, the peak of the mid-decade LBO boom. And there have been times when refinancings were a higher percentage of total loans; in Q2’09, near the nadir of the financial crisis, just about nothing other than refinancing was going on. Refinancings then accounted for 83 percent of the $71.7 billion total.
Lenders pushed back toward the end of the quarter just ended, however; LPC reported that more than $17 billion in leveraged refinancings were pulled from the market since March 10.