Broadening of Issuer Diversity Supports Refinancing Momentum | White & Case LLP


Debt markets are turning to issuers from a wider range of sectors, maintaining high levels of refinancing activity

The sharp increase in refinancing activity in the leveraged loan and high yield bond markets through the first half of 2021 is expected to continue, with lenders increasing their allocations to sectors directly affected by COVID-19.

The issuance of high yield bonds and leveraged loans for refinancing in North America and Western and Southern Europe reached US $ 636.6 billion in the first half of 2021, nearly double the 334.33 billion US dollars recorded in the first half of 2020. Refinancing values ​​for the first two quarters of 2021 represented the two highest quarterly totals to By debt record, dating back to 2015.

Global issue in value Q1 2019 – Q2 2021

Instrument type: High yield bonds and leveraged loans Product use: Refinancing
Site: All of North America and Western and Southern Europe Sectors: All sectors

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The peak in refinancing activity in the first six months of 2021 represented just under half of total issuance in these regions (US $ 1.3 trillion), compared to a share of 37% over the same period in 2020.

Refinancing activity has been driven by sectors that have proven to be more stable and resilient during the pandemic. Refinancing of technology and healthcare, for example, totaled US $ 52.21 billion and US $ 59.21 billion, respectively, in North America and Western and Southern Europe in the first half of 2021. 44.73 billion US dollars and 36.58 billion US dollars respectively.

Sector breakdown

In the second half of 2021, signs suggest investors are widening the sector’s net and showing an appetite to refinance credits that have been hit hardest during the lockdowns.

As immunization programs unfold, the outlook for businesses in the travel, entertainment and retail industries, among others, looks increasingly positive. The rapid spread of the delta variant of COVID-19, particularly in the United States, remains a concern, but with vaccinations proving generally effective, yield-hungry lenders have the confidence to support a larger pool of credits in more sectors as economies continue to reopen, with earnings expected to see a strong recovery.

Technological and healthcare activity will remain robust, but refinancing issues in the transport, Hobbies and retail business sectors experienced a recovery in activity in the first half of the year, particularly in the first quarter. The last three sectors combined obtained a increase in the volume of refinancing capital in H1 2021 only for each complete year going back to 2018 inclusive.

Pizza Express, a popular casual restaurant chain in the UK, is an example of a company forced to close by lockdowns that was then able to access capital markets to refinance its loans.

The company had a rough 2020 when it was forced to close 73 restaurants and cut 2,000 jobs, but in July 2021 it managed to secure a refinancing deal thanks to improved trade and the reopening of restaurants. The refinancing consisted of a £ 335million bond transaction and entry into a new super senior revolving credit facility.

Good news for borrowers and lenders

Improving emission outlook in sectors affected by COVID-19 is a welcome development for lenders and borrowers.

From a lender’s perspective, reopening economies creates a deeper pipeline for deployment. Refinancing during the pandemic was limited to high quality or less impacted credits, but as markets return to normal and more issuers enter into deals, lenders will be more likely to support credits.

For borrowers, there are opportunities to refinance expensive high-yield bonds and loans that were lifted as a result of the lockdowns as companies rushed to get cash to see them weather the crisis.

In May 2021, the Carnival cruise company managed to halve the cost of more than US $ 2.5 billion in debt incurred at the start of the pandemic cycle by issuing a US $ 1.8 billion loan to the states. United and a loan of 794 million euros in Europe. The US facility was listed at 3% above LIBOR, compared to a 7.5% margin taken on its loan just 12 months earlier. The loan guaranteed in Europe, meanwhile, was evaluated at 3.75% against 7.5% in 2020.

The lenders noted that Carnival was reporting the sale of its UK cruises as well as the resumption of operations of its US-based cruise services after a hiatus dating back to March 2020.

U.S. retailer Kohl’s, meanwhile, has launched a takeover bid and a new debt issue to refinance around $ 1 billion in debt. The group has negotiated a deal with lenders to buy back $ 1 billion of its debt maturing between 2023 and 2025, including debt tranches issued at the height of the COVID-19 crisis and priced at 9.5 %. Takeover bid, part of which was funded by issuing a new 10-year US $ 500 million loan facility at a price of 3.375%, is expected to reduce Kohl’s interest expense up to US $ 50 million per year.

Another US retailer, Nordstrom, secured a financing package of US $ 675 million in April which was used to repurchase US $ 600 million senior secured notes priced at 8.75% and maturing in 2025. The US $ 675 million package will reduce annual interest charges by 30%. and consists of US $ 250 million in debt priced at 2.3% and US $ 425 million in borrowings priced at 4.25%.

Similar deals are expected to proliferate in the second half of this year, as borrowers refinance expensive loans and bonds incurred in the heat of the moment 2020. This should support high levels of refinancing through the end of this year. 2021.

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