Amendments almost half of LevFin volume

US LevFin volume reached a record high of $408.6bn via 516 deals in the first quarter of 2017, up 63% from Q4 2016 ($249.7bn via 345 deals). Simultaneously, US LevFin revenue increased to $2.5bn in Q1 2017, up 8.5% from Q4 2016 ($2.3bn). The divergence of volume and revenue growth is largely due to amendments* reaching record volumes in Q1 2017, accounting for 49.5% of total US LevFin volume — in comparison to only 9.4% of revenue. Meanwhile, acquisition-related LevFin deals accounted for 47.1% of US LevFin revenue in Q1 2017, despite only factoring for 17.8% of volume.

M&A debt financing in limited supply

In spite of investors’ desire to obtain debt, there is not enough supply within M&A debt financing. This, along with previous speculation that interest rates would rise, have led investors to satisfy their demands by turning toward amendments, which tend to have lower margins.

In 2017 Q1, the top five fee payers accounted for 14.5% of total US LevFin revenue, while the top five fee-paying industries contributed to a combined 50.2% of revenue. Healthcare led the way with 12.6% of revenue, followed by telecom and technology with 12.5% and 9.8%, respectively. Two of the top three fee-paying deals last quarter were among these top three sectors, and they all supported M&A deals.

LevFin revenue moving forward

With limited M&A activity, the influx of amendments is providing the supply to meet investor demands for yield, as in the case of 2017 Q1. However, pending acquisition loans for M&A deals announced earlier in 2017 is picking up and includes a healthy volume of upcoming deals. With $50.3bn of announced loans to support M&A activity, LevFin revenue can be expected to increase as the year progresses.

*Amendments include repricing, extending the tenor, and increasing/decreasing facility size.

Data source: Dealogic, as of May 2, 2017