Rising Trends in Leveraged Loan Repricing Reflect the Undercurrents of a Heated Summer Financial Season

As the summer heatwave arcs across the financial sector, an interesting trend is reshaping the leveraged loan market. Repricing transactions are gaining momentum, fueled by a sustained summer rally in the loan secondary market. The steady advancement of these transactions is reflective of the lighter new-issue supply and a secondary market that continually climbs. As of July, the repricing volume via amendments has balloined to $57.7 billion, reaching heights unseen since January’s whopping $138.2 billion.

Interestingly, borrowers have managed to lower spreads via repricings by about 43 basis points (bps) in July. A slight decline compared to 48.5 bps in Q2 and 57.5 bps in Q1. Furthermore, leveraged loan repricing isn’t a fad destined to evaporate with the summer heat. According to the LCD’s assessment, potential repricing targets in the US amounted to $58.3 billion as of July 17.

One cannot ignore the correlation between the growing repricing activity and a typically slower new-issue market — the summer is certainly not a breakout period for new issues. So far, July’s total new supply (excluding repricings) tallied up to $22.7 billion, indicating a likelihood of falling short of January’s several $64.4 billion — the year’s busiest month.

Nevertheless, opportunistic activities such as dividend recapitalizations are beginning to fill the void, illustrated perfectly by the $2.215 billion cross-border deal for UK-based Froneri’s transfer to a PAI Partners continuation fund. A vibrant summer indeed, and the leveraged loan market is feeling the heat.