JPMorgan Dominates EMEA Leveraged Finance
The leveraged finance team at the bank is very busy. They have taken on six new underwriters recently. They are doing direct lending, refinancing, and quality placements. Edward Russell-Walling wrote about this.
Leveraged finance is still busy, even though there aren't many mergers and acquisitions (M&As) currently. JPMorgan's EMEA team is doing a great job with lots of new underwrites and getting creative with refinancing.
JPMorgan did not suffer much loss in 2022 unlike other competitors. Rudnicki Schlumberger stated that they began the year without any leftover problems from the previous year.
Other investment banks lost money when they couldn't sell loans due to low demand. They cut their leveraged finance teams. JPMorgan did not. They want to help their clients with leveraged lending and continue to do business. That's according to Mr Rudnicki Schlumberger.
Ben Thompson from JPMorgan says the leveraged finance market is good right now. It's not as great as early 2022, but it's better than most of 2022.
Refinancing is what's driving volumes, according to Mr Thompson. M&A isn't causing much activity. There are some M&As happening, but it doesn't seem like there will be many in the near future.
JPMorgan now offers direct lending via its leveraged finance team. The move puts the bank in competition with direct lenders like Ares Management and Golub Capital. The bank will keep hold of certain leveraged loans and fund them to maturity. Borrowers who struggle to distribute high-yield bonds could find this option helpful. The bank also stands to earn a lot of money from the service.
The team has hired six new underwriters. This is a big deal because they haven't hired this many in a year. The team is happy because they are the only ones doing this. The new underwriters will handle both loans and bonds. They also did a big public-to-private underwrite for the first time since Russia invaded Ukraine.
. We're available for leveraged lending and want to demonstrate our support to our customers.
Silver Lake and CPP Investments bought Qualtrics for $12.5bn. Qualtrics was on Nasdaq and mostly owned by SAP. Now, Silver Lake and CPP Investments own it all.
Silver Lake hired JPMorgan as its financial adviser. The deal was funded mainly by equity, which was worth more than $10bn. JPMorgan also arranged and managed $1.4bn in credit facilities for the deal.
The bank got a $1.2bn seven-year term loan B and a $200m five-year revolving credit facility. The money has a secured overnight financing rate plus 350 basis points. This is the tightest seven-year money for a single B borrower in over 14 months.
Interest rates went up a lot last year, which made refinancing harder for companies and their advisers. JPMorgan has come up with new ideas that help both the companies and investors.
JPMorgan helped iQera, a French credit management company. They acted as the main dealer manager for a €500m exchange offer. This offer also had a new money component. JPMorgan was the only physical bookrunner. It was an innovative deal that they helped make possible.
iQera is owned by BC Partners and has a debt of €550m which is due in 2024. Debt collection isn't popular among investors.
The people in charge wanted to be careful, so they wanted to get a lot of debt. They didn't want to get all of it though. Natalie Day Netter, who works at JPMorgan, says this. She's in charge of leveraged finance syndicate for Europe, the Middle East, and Africa.
People who already have bonds were given the chance to swap them for new notes with higher yields. These new notes will reach maturity in 2027. Additionally, they were given a cash incentive worth 5 cents for every euro. To make sure this plan works for iQera, 75% of bondholders must accept the exchange.
Ms. Day Netter says that the holder base had CLO funds. They made it easy for them to extend by creating mechanics.
The structure of CLO funds means they can't reinvest with cash. iQera issued new cash notes alongside an exchange. These notes have the same terms as the old notes. People who couldn't be a part of the exchange can switch to the new cash notes with a tender offer.
Companies are now mainly concerned about the cost of debt. This means we have to be creative. We have to understand this focus.
This was a big event for the leveraged finance market in Europe. iQera could get €500 million of its debt with a lower coupon compared to its primary market. Ms Day Netter says the market wouldn't have been open for a €500 million issue at that time.
Mr. Thompson describes the iQera deal as a highly technical and imaginative solution. The market it targets is still grappling with its purpose.
Lots of debt investors don't like the credit management service sector. There are economic worries for the sector. Mr Thompson thinks creativity is important, since companies care about debt costs. Some challenges still need to be dealt with.
Ms Day Netter says people are moving toward better quality products. Prices will become more spread out this year. This means the rich and poor will have even bigger gaps in pricing.
JPMorgan helped two transactions as lead left bookrunner. Loxam, a European equipment rental group, sold €300m of five-year senior notes. The notes were priced at 6.375%, lower than the initial talk of between 6.5% and 6.75%.
The money from the sale will be used to pay back debt. Loxam also offered to exchange €700m in notes with different due dates. The new deal would have both senior secured and senior subordinated notes due in 2025.
A company named Benteler is a family business from Austria. They came to the market with a refinancing package worth €2bn, only two days after the first company. Their package included bonds in euros and US dollars, as well as a term loan A which is also brand new for the company.
Benteler's credit rating is similar to Loxam's. Their new bond is also for five years. Benteler had to pay more, however. This is because they are in the unpopular auto sector. Their interest rate was 9.375%, while Loxam's was 6.375%.
The bond offering was successful. It was priced at a good rate after being oversubscribed. The US dollar tranche was worth $500m and had a 10.5% interest rate. The €810m loan had a 4.5-year term and an interest rate of Euribor plus 450bps.
JPMorgan helped Action, a Dutch non-food retailer, by co-ordinating a €2.5bn term loan B. The orderbook was covered enough to upsize the loan from €1.5bn. This helped Action refinance their previous term loan B that ended in 2025.
A guy named Mr. Rudnicki Schlumberger says there will be more refinancing soon. He thinks that 2023 has more refinancing than 2022 did at this time. His team thinks that people need to refinance about €170bn of debt in the next few years. So far, people have only refinanced €30bn.
There's a lot to do, according to him. The issuers know that it's expensive, but it's not if you think long-term. Debt in leveraged finance is at its 20-year average. Debt is not more expensive.