the market for a refinancing in December, and the deal included a $75
million first-in-last-out (FILO) tranche
(which would have been unthinkable
six months earlier). Everyone expected
cutbacks in the lender commitments on
the primary $675 million, 3.5 year asset-based revolver during final allocations.
4Q09 were just over
391bps over LIBOR
ABL Deal Counts Drop Off, Jumbo Deals Support Issuance Levels
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
450
(382bps exclusive
of DIP financings),
down 10% from
400
350
300
250
200
150
100
Number of deals
Volume
Deal Count
1Q09 levels but still
up a resounding 47%
from 4Q08 levels.
ABL Issuance ($Bils)
50
-
-
2004 2005 2006 2007 2008 2009
source: Reuters LPC/DealScan
Despite the improving market
profile, lenders sought to reconcile
their increasing optimism with fears
around deteriorating deal structures
and spreads. “Where some banks see
high demand,” explains one lender,
“is in better names, which have the
luxury of doing better deals.” Names
such as Barnes & Noble, for example,
get attention, but tougher credits and
true middle-market credits are not easy.
There is a risk that the market will become bifurcated. Adds another lender,
“There is a probusiness mentality, but it
is not clear that lenders will continue to
do what we want them to do.”
Looking forward
toward 2010, spread
ABL Lending Increases As A Percentage Of Total Leveraged Issuance
pressures are ex-
80.00
($ in Billions) ABL as a of Leveraged Volume
70.00
pected to continue,
60.00
50.00
and tenors that had
40.00
30.00
been pulled in to
20.00
10.00
ABL as a of Leveraged
three or fours years
0.00
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2004 2005 2006 2007 2008 2009
in early 2009 will
probably drift out
to five years once
again. Yet, lenders
emphasize that
despite increasing
competition, no one
is doing anything
too crazy. Club deals
ABL Volume ($ in Bils)
Source: Thomson Reuters LPC
Amend & Extends Keep Market Operational; Dips And Exit Financings Pick Up
DIP/Exit Finance Amend & Extends General Corp. Purp.
Total ABL Issuance by Purpose (%)
Other M&A
100%
18%
90%
80%
8% 3% 4% 4%
14% 5%
21% 15%
35%
10%
21% 33%
70%
12% 15%
60%
50%
40%
72%
As such, although ABL lenders
pushed almost ten billion-dollar-plus
deals through syndication (including
Sears, Toys “R” Us, LyondellBasell, and
Barnes & Noble), smaller credits were
often tougher and were more vulnerable unless they were heavily clubbed.
— or at least top-heavy syndicates —
are also expected to
stay in place, according to several arrangers. “You can never
have enough market
64%
30%
59%
62%
63%
62%
20%
10%
0%
2004 2005 2006 2007 2008 2009
Source: Thomson Reuters LPC
Spreads Increase In 2009 But Come Under Pressure In 2H
Of course, nothing comes easily
when the rules of engagement are
still being defined. Structures that
tightened in the beginning of the year
to include higher spreads and even the
occasional LIBOR floor briskly loosened by December — especially for
better names and strong-relationship-based credits.
depth,” explains one
45%
40%
Percentage of Deals
35%
source. Although
30%
25%
2005
2006
market tone feels
2007
20%
15%
2008
2009
much better, it is still
10%
difficult to measure
5%
0%
how much better it
really is. TSL
<150 >=150-199 >=200-249 >=250-299 >=300-349 >=350-399 >=400-449 >=450
Libor Spreads (bps)
source: Thomson Reuters LPC
source: Thomson Reuters LPC
spread dispersion among deals of $75 million or greater
The “days of LIB+400 and 100bps
undrawn are largely gone,” points out
one arranger, despite having been
“middle of the fairway” for the better
part of the year. Over 58% of total
issuance among deals of at least $75
million was priced at LIB+400 in 1Q09
(35% of total issuance was priced at
LIB+450 or greater). For all of 2009,
however, 53% of total issuance was
priced at LIB+400, and a much thinner 27% made up deal volume priced
at LIB+450 or greater (see Figure 4 to
the right). In turn, average spreads in
Maria Dikeos is a vice
president and global manager of League
Tables & Primary Market Loan Analysis
with Thomson Reuters Fixed Income Data
and Thomson Reuters LPC in New York.
She has been with Thomson Reuters LPC
since 2001; prior to that, she worked
at a major investment bank. She has a
B.A. from Wellesley College and Master
in International Affairs from Columbia
University and the University of Geneva.
