of
Deals
105
Market
ing trends that part-
Share
nered asset-based
1
Bank of America
Merrill Lynch
Wells Fargo & Company
JP Morgan
Citi
General Electric
Capital Corporation
Deutsche Bank
PNC Bank
UBS AG
Barclays Bank Plc
Rabobank
Credit Suisse
Capital One NA
Sun Trust Bank
GMAC
Commercial Finance
Regions Bank
U.S. Bancorp
HSBC Banking Group
Bank of Ireland Group
Comerica
Private Bancorp Inc
14,360,003,289
34%
loans with bond
financings, provid-
to provide up to $500 million in ABL
financing. The company put the structure in place by tapping lenders for
51% consent.
2
9,487,558,999 68
22%
ing issuers with the
3
5,789,050,000 32
14%
opportunity to term
4
3,157,500,000 13
7%
5
2,322,000,000 20
5%
out debt. Appropri-ately-sized ABLs with
appropriate advance
6
1,509,500,000 6
4%
rates once again
7
1,250,503,733 28
3%
8
1,212,500,000 6
3%
provided one of the
viable financing
options available to
9
567,500,000 4
1%
leveraged issuers
10
500,000,000 1
1%
in what was still
11
425,000,000 2
1%
a risk-averse and
12
370,000,000 2
1%
highly selective loan
13
350,000,000 2
1%
market. When all
14
292,000,000 4
1%
was said and done,
asset-based lending
15
207,500,000
3 0%
made up over 18% of
Although lenders came along for
the ride, most only begrudgingly
accepted the amend-and-extend phenomenon. “We have looked the other
way on those,” says one lender. “We
are looking out for new, higher-priced
deals coming into the market. [Funda-mentally], we have figured out a way
to get around the 100% vote. I don’t
like it at all, and I don’t think that it
has anything to do with the spirit of
existing deals. No one contemplated
that we would bifurcate a loan at the
time of structuring. ” DIP and amend-and-extend activity made up one-third of total ABL volume for the year
among deals of at least $100 million
(see Figure 3 on page 39).
16
165,000,000
3 0% total lending for the
17
100,000,000
1 0% year — the highest
18
87,500,000
1 0%
level in six years (see
19
80,000,000
1 0%
Figure 2 on page 39).
20
77,500,000
2 0%
Refinancings of
existing portfolio
names dominated
for the better part of the year.
At $42.75 billion, 2009 ABL issuances
were on par with 2008 volume ($42.34
billion; see Figure 1 on page 39). During this same period, total leveraged
lending saw a year-over-year drop
of almost 19%. At the outset, the underpinnings of ABL as a traditionally
counter-cyclical product fuelled deal
flow. It helped that lenders were talking about tightly structured borrow-ing-base credits premised on regularly
scheduled asset appraisals and field
exams. Amid the rising default-rate
environment at the beginning of 2009
and declining credit quality in the
leveraged market, it made sense that
asset-based structures would take
root as one of the few alternative
sources to securing liquidity. As one
lender noted, “There is only one place
to go for covenant-lite revolvers, and
that is ABL.”
deal flow as credits shifted from com-mercial-bank groups to ABL groups.
Event-driven transactions were scarce
with the exception of a few DIP financings. New asset-based deals were
largely concentrated among cash-flow
issuers that overhauled their capital
structures to incorporate ABL components (including names such as Liz
Claiborne, FootLocker, USG, Eastman
Kodak and Barnes & Noble). At just under $14 billion, new loans represented
just 33% of total ABL volume, down
from 63% a year earlier. More significantly, in terms of dollars raised, the
blend of self-help financings and DIP
credits represented 91% of total ABL
volume for the year.
Ultimately, each credit had its own
story. So did each lender. And timing mattered. In March, Sears Holdings tapped the market to extend its
$4 billion ABL revolver and, based
on the company’s BB+/Baa3 senior
secured rating and price talk at a
hefty LIB+400, the market generally
deemed that “this was a good deal to
do.” Nonetheless, lenders pointed out
the heavy reliance on existing lenders
(many of which were not traditional
ABL investors) to come into the deal,
even though the tier-one lenders were
expected to take down a significant
chunk of the financing.
In this context, a strong, wildly
open high-yield bond market ushered
Rather than starting from scratch,
self-help financings were more likely
to be pieced together from existing
structures and existing bank groups
via “amend-and-extend” credits. USG
Corp., for example, amended its previously unsecured cash flow revolver
Six months later, demand for new
ABL loan assets outstripped supply.
Both the Barnes & Noble and C&S
Wholesale deals flexed down following their 4Q launch (C&S Wholesale’s
deal upsized by $50 million to $800
million). Of course, these were both
good-quality credits with strong
lender relationships and good pricing.
“There is certainly more demand out
there,” noted one lender in December.
“A couple of deals have been done
recently that have been so oversubscribed that we have been cut back
40% on our commitment.”
In Bon-Ton’s case, the issuer tapped
