Hot documentation topics: H1 2017

Hot documentation topics: H1 2017

This Practice Note produced in partnership with Neil Grant summarises key trends affecting the leveraged finance market during the first half of 2017 and explains how loan documentation has evolved in response to those trends.

Key trends

Loan pricing

2017 has seen European Term Loan B (TLB) price at the lowest yields since the credit crunch and, importantly, lower than both high yield bonds and US. TLBs. Several factors have created a significant imbalance between the supply and demand for loan assets:

  • The European collateralised loan obligations (CLO) market has recovered strongly in recent years. As issuance has expanded, CLO pricing has contracted which, in turn, drives pricing contraction in the institutional loan market.
  • New participants, such as open-ended funds and managed accounts, have been attracted to invest in leveraged loans due to their status in the capital structure and relative value compared with other assets.
  • Finally, the leveraged finance market remains a lucrative source of revenues for underwriting banks. Most market participants have repaired any legacy issues and are back in 'risk-on' mode. The underwriting market is as competitive as it has ever been with investment banks challenged by rising targets, national banks keen to defend market share in their local jurisdictions and new entrants and direct lenders seeking to win market share for larger transactions

The downward pricing pressure has resulted in activity thus far in 2017 being dominated by loan repricing transactions, add-on facilities and recapitalisations.

Loans are back in vogue

During 2017 to date, attractive loan pricing has driven many borrowers to finance large transactions exclusively through the loan markets. Some high profile transactions even dropped anticipated bond tranches due to the demand for, and pricing of, their loan tranches. A number of borrowers who previously financed themselves through the bond market have even begun to move back to the loan market, unwinding the momentum in favour of bond financings that

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About the author:

Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.