August 30, 2017
Written by Csilla Kocsis, Dealogic Research
Financial sponsors remain top fee drivers
So far in 2017, financial sponsors (FS) were responsible for $4.6bn in fees within the US market for leveraged finance (LevFin) and contributed to 48.8% of total fees in the market—the highest YTD revenue and share of revenue since 2014 ($5.2bn and 49.3%). Over the past 5 years, sponsors and their portfolio companies have consistently remained the top fee drivers. Breaking down deal types, leveraged loans accounted for 59.8% of sponsor-related LevFin fees in 2017 YTD. Moreover, FS-related leveraged loans volume increased to $451.1bn (via 799 deals) this YTD from $249.6bn in 2016 YTD (535 deals).
Refinancing drives sponsor-related loans volume
The increase in FS-related activity within the US LevFin market is a likely result of the favorable low-rate environment and excess liquidity. These factors led to early refinancing, which became a major growth area, with loans used for refinancing purposes exploding to $250.8bn so far this year from only $111.9bn in 2016 YTD. With refinancing in the top spot, loans used for leveraged buyouts came in second with $80.7bn this YTD, followed by acquisition-related loans with $47.1bn. The last two were little changed from 2016 YTD, seeing only a modest increase.
Opportunities from the rise in outstanding loans
Currently, total sponsor-related LevFin debt due over the next 5 years accounts for $919.6bn, with an average increase of 37% year-on-year from 2017 onwards. The peak amount to mature is $268.9bn in 2021, and several companies are expected to weigh their refinancing possibilities, providing ample opportunity for bankers. Of the amount due in 2021, $56.2bn in leveraged buyout loans will mature, along with $71.1bn in refinancing loans, which offer further fee opportunities. The biggest sponsor-related borrowers whose loans are expected to mature that year are Albertsons Companies with a $3.0bn term loan, followed by MultiPlan’s $2.2bn term loan and Acosta’s $2.1bn term loan.
Looking at top private equity firms by outstanding debt in 2021, Hellman & Friedman tops the list with $3.4bn. KKR follows with $3.2bn of outstanding debt and Apollo Global Management is in third place, having $2.2bn of outstanding LBO debt and a $1.2bn undrawn revolving credit facility.
Data source: Dealogic, as of August 28, 2017