Jumbo loan buy-out financings make up increased share of market in 2021

Source: Debtwire Par

Leveraged loan and high-yield bond issuance backing buy-outs set a record in 2021, increasing 95% over the 2020 figure to USD 240.3bn. Leveraged loans accounted for USD 212.7bn of issuance, up 98% from last year, while HY bonds made up the remaining USD 27.6bn for a year-over-year (YoY) gain of 75%. Combined issuance slowed to USD 13.9bn in the fourth quarter, having set a new quarterly issuance record of USD 67.7bn in 3Q21. Fourth-quarter loan issuance backing buy-outs declined 20%, while bond volume slumped 89% quarter-over-quarter.

Financing activity exploded amid record private-equity (PE) buy-out activity, which recorded 2,431 buy-out deals worth USD 647bn, marking a record year. Low interest rates and a backlog of buy-outs shelved during the pandemic helped fuel the red-hot market this year.

Larger average deal sizes from issuers such as Medline Industries (USD 7.8bn) and PAREXEL International (USD 4.1bn) helped push loan issuance 19% above the previous high set in 2018 (USD 178.5bn), as larger buy-out financings returned to the market. Compared with 2020, when 18% of loan buy-out financings were USD 1bn in size or greater, the 2021 figure increased to an impressive 25% – the highest proportion in recent years. At the same time, the share of deals in the sub-USD 500m range fell to 50% from 67% last year.

Looking ahead, the trend towards larger buy-out financings is expected to continue. Athenahealth is currently in the market for USD 6.75bn of loan financing to support its USD 17bn buy-out by Hellman & Friedman and Bain Capital. The JPMorgan-led financing consists of a USD 5.75bn TLB facility and a USD 1bn delayed draw term loan, as well as USD 2.5bn of unsecured debt. Also of note is the USD 3.3bn sale of Tropicana, Naked Juice and other brands to PAI Partners from PepsiCo. The deal is supported with USD 2.4bn of first- and second-lien loans.

(Past performance is no guarantee of future results.)