With M&A/LBO activity accelerating over the past couple of months, the leveraged loan forward calendar has been grinding higher, setting the loan market up for a busier fall for M&A/LBO volume鈥攁t least by recent standards.
With a series of new underwrites announced during the summer, including billion-dollar-plus transactions such as聽Envestnet,听Instructure听补苍诲听R1 RCM, LFI鈥檚 gross forward calendar has grown to $39bn, or $33bn net of associated repayments, from $21.1bn gross/$14.8bn net at the end of Q2 and to the highest gross total since November 2022.
A good deal of the forward calendar, which is predominantly underwritten deals, is expected to come to market in September and October, based on numerous conversations with sellside market participants. LFI is tracking at least some $26.6bn of M&A and LBO-related loans that sources say are likely to launch prior to the U.S. presidential election, or about $22.2bn net of associated repayments. (Instructure‘s LBO, for example, entails an underwrite for $2.05bn of first- and second-lien loans, though the borrower’s $1.173bn existing TLB is slated to be repaid, so the deal represents $877mn of new money.)
Among the deals expected are聽AGCO Grain & Protein,听Cleveland Cliffs,听Endeavor,听贰苍惫别蝉迟苍别迟,聽First Advantage,听Glatfelter,听GSM Outdoors,聽Heroux Devtek,听Instructure,听Janney Montgomery Scott,听Owens & Minor,聽R1 RCM,听S&S Activewear,听Terex,听罢丑别谤补办辞蝉听补苍诲听USALCO, sources say, in addition to a handful of other transactions that have been signed although no details around the debt financing have been disclosed. As always, timing can be fluid, particularly for deals with a longer tail to closing.
(LFI鈥檚 forward calendar can be accessed聽; transaction sizes are available to the extent they have been publicly disclosed or reported).
This potential level of volume over the next couple of months鈥攚hich could grow should more deals sign up in the coming weeks with a quick turnaround to closing鈥攚ould mark a notable increase over last couple of years, when M&A/LBO-related loan issuance slowed following the start of the Ukraine War in early 2022.
For context, however, it would be well below the LBO boom in 2021. Likewise, the forward calendar at this time of year three years ago stood at roughly $57bn, though it had swelled to $74.4bn by the end of August.
While hardly daunting by historical standards, the increase in underwritten business comes after sellside participants in recent months have relayed an increase in early-stage processes relative to the slow-going days of 2023 and the latter half of 2022. Players had hoped this increase would materialize into more M&A-related loan deals for the fall. This narrative to some extent has played out as evidenced by the more robust forward calendar though the market does still face challenges鈥攃ertain deals continue to fall apart over valuation and others are lost to the private credit market.
Assuming the Fed does move forward with a rate cut in September, a declining-rate environment should help the cause, since elevated interest expense has presented a challenge with respect to financings deals. Strategists at LFI sister publication聽糖心视频聽are forecasting a 25bps rate cut at the Fed鈥檚 September meeting and for the Fed to deliver a 鈥渟teady drip鈥� of 25bps cuts through at least the first half of 2025.
As for opportunistic business, sellside participants are watching the tape. The volatility spurred by the July non-farm payrolls report put a damper on best-efforts activity, particularly repricings, spurring a half dozen issuers to shelve deals last week and many others to delay launching transactions in the first place (see聽, Aug. 9). Assuming the handful of deals remaining in market clear before month鈥檚 end, August volume would clock in at a paltry $26.4bn, which would be the slowest month for gross issuance since June 2023. While the early-month volatility certainly depressed August鈥檚 volume, the abbreviated window to do business ahead of the end-of-summer hiatus was also a factor.
That being said, sentiment has certainly improved since the beginning of the month and how the next few weeks unfold will help set the tone in September; market participants are awaiting events such as the Fed鈥檚 upcoming Jackson Hole conference and the August non-farm payrolls report. The loan secondary has recouped a good deal of the early-month losses鈥攖he average bid price of the Credit Suisse Leveraged Loan Index stands at 95.58, up from the recent low of 95.12 recorded on Aug. 5 but still below 95.82 at the start of the month鈥攖he secondary could grind higher in the absence of allocations over the next few weeks barring any headlines that spook the market and/or spur heavy loan mutual fund outflows.聽If the secondary market is supportive, arrangers could roll out deals that were ready to go in August but launched due to the volatility.
Kerry Kantin
kerry.kantin@levfininsights.com
+1 646 276 7603
