Leveraged Loans Arrangement: Understanding the Recent Surge in Repricing Activity

The leveraged loans market has witnessed a significant surge in repricing activity in recent months, with many issuers taking advantage of low interest rates to restructure their debt obligations. In this article, we will delve into the reasons behind this trend and explore its implications for borrowers and investors alike.

According to S&P Global, the average borrower in the US that repriced credits in the first six weeks of 2021 was able to cut the credit's spread over LIBOR by 66 basis points on average. This represents a significant savings for borrowers, particularly those with large debt burdens. The trend is not unique to the US, however, as European borrowers have also been taking advantage of low interest rates to restructure their debt.

One of the primary drivers of repricing activity is the drop in LIBOR, which has fallen significantly since the credit was originated. As a result, borrowers are able to secure lower interest rates on their debt, resulting in significant cost savings. In addition, the current market environment is characterized by strong demand and abundant liquidity, which has driven down loan pricing in favor of borrowers.

Repricings accounted for more than a fifth of total issuance in the region in the first three months of the year, ahead of loan issuance for buyouts and M&A. This represents a significant increase from previous quarters, with repricing issuance jumping from US$2.4 billion in Q4 2020 to US$20.8 billion in Q1 2021.

In terms of use of proceeds, repricings represented almost a third of total US leveraged loan issuance in Q1 2021, coming in second to refinancing and followed by combined M&A/buyout activity. This increase was particularly evident in the US, where repricings in the leveraged loan market jumped from US$1.8 billion in Q4 2020 to US$122.8 billion in Q1 2021.

The rise in repricing issuance is often seen as a sign of a hot loan market, characterized by abundant liquidity and strong investor demand. This has led many borrowers to take advantage of the current market conditions to restructure their debt obligations and secure more favorable interest rates.

In conclusion, the recent surge in repricing activity in the leveraged loans market is a testament to the power of low interest rates and strong demand for debt securities. As the market continues to evolve, it will be important for borrowers and investors alike to remain vigilant and adapt to changing conditions. By understanding the factors driving this trend, we can better navigate the complex landscape of leveraged loans arrangement.

Leveraged loans arrangement