NEW YORK, Dec. 14, 2020 /PRNewswire/ -- The year 2021
is shaping up to be a strong and supportive one for leveraged
finance, led primarily by merger-and-acquisition (M&A) and
refinancing activity, according to the Capital Markets group at
Mitsubishi UFJ Financial Group (MUFG).
Key members of the group delivered their outlook for leveraged
finance to reporters and editors at a virtual MUFG media roundtable
earlier this month that featured Jeffrey Knowles, Co-Head of Debt Capital
Markets; Grant Moyer, Head of
Leveraged Capital Markets; and Art de Peña, Head of Loan
Syndications and Distribution.
Accommodative factors for leverage finance heading into
2021
"We are at one of the greatest times ever to issue in the high
yield market, especially if you're a double-B or single-B credit,"
said Mr. Moyer, citing this year's record-high issuance of more
than $400 billion, as well as the
BofA Merrill Lynch U.S. High Yield Index's record-low yield of 4.5%
on December 4, which surpassed the
previous low of 4.9% in June of 2014. "The world is awash with
liquidity, rates are low [and] expected to be low for quite a
long…time, and there's a tremendous amount of optimism as we look
at potential vaccine effects of moving beyond COVID and as we look
toward the middle of 2021."
Mr. de Peña attributes this optimism to "investors…on the bank
side [and] the institutional side," who "give us…more confidence
that we head into 2021 in…better…and more stable footing." He adds:
"We've had solid demand [for leveraged finance] continue, and we've
had a…conducive Federal Reserve that's providing a lot of support
and backstops to some of these investors."
M&A and refinancing as key drivers
MUFG's Capital Markets group expects corporate M&A,
private-equity buyouts and refinancing to drive the largest share
of debt issuance below investment grade in light of narrowing
credit spreads.
"What drives M&A is confidence level in the boardroom," Mr.
Moyer said, adding that companies are willing to take on more debt
in pursuit of acquisitions because they have greater clarity about
the future improvement of their own operating performance, as well
as the performance of potential acquisition targets. As a result,
"I think we'll see higher leverage [in 2021]," Mr. Moyer said,
though he noted that in some struggling sectors that have yet to
recover from the pandemic—such as retail, travel and
hospitality—leveraged buyouts will remain challenging and may
entail more elaborate financing structures.
Mr. Moyer added that for companies undergoing bankruptcy, the
current credit environment provides an opportunity to refinance
debt at lower rates. "One of the things that happens whenever
[there's] an [economic] downturn is [that] companies that were
barely hanging on [file for bankruptcy]. [T]hat creates…an
opportunity to recycle capital, streamline businesses, make them
more efficient, and then create actual capital, investment
opportunities and financing opportunities," he said. "Because
there's so much liquidity out there, we've seen…companies come
through bankruptcy with ample financing."
Mr. Moyer cited examples of companies that, in the course of
bankruptcy, availed themselves to asset-based lending (which is
secured by collateral such as inventory and receivables), and to a
type of financing known as "exit financing," which allows a company
to emerge from bankruptcy and restructure its business for
efficiency. Through exit financing, debt owners can become equity
owners and, in turn, provide a bankrupted company with capital, he
said.
According to Mr. Moyer, the current environment will "create a
lot of efficiencies and productivity gains in the overall economy,"
as well as refinancing opportunities through high-yield bonds and
Term Loan B loans in 2021 and beyond. Mr. de Peña added that the
current supportive environment for refinancing is "helping push
back the maturity walls that we would have normally seen in 2022
and 2023," and that if liquidity remains abundant, then "default
rates should [remain] relatively benign."
Risks to the outlook
Messrs. Knowles, Moyer and de Peña singled out a number of key
risks that, if materialized, could undermine the prospects for
leveraged finance next year. They include:
- a COVID-19 vaccine snag, such as a problem with
the vaccine's distribution, the supply chain that makes its
production possible, or its medical efficacy—each of which could
derail or prolong the economic recovery;
- continued deterioration in U.S.-China trade relations; and
- the remote possibility of inflation or a sharp hike in
interest rates, which would erode bond values and raise
particular concerns for longer-maturity debt.
More dollar-denominated debt issuance in Asia
Mr. Moyer expects greater issuance of U.S. dollar-denominated
debt in Asia due to higher
expected acquisition activity, as well as the prevalent expectation
that the U.S. dollar will continue to decline and thus become a
more attractive currency for overseas companies in which to issue
debt. "I do think we'll see more…Term Loan Bs and…[high-yield] bond
activity" in Asia, he said.
MUFG is one of the world's largest financial institutions by
assets, with approximately $3.3
trillion.1
About MUFG's Debt Capital Markets group in the
Americas
With a traditionally strong foundation in the investment-grade
sector, the Debt Capital Markets group at Mitsubishi UFJ Financial
Group (MUFG) has continued building out its leveraged-finance
capabilities for corporate clients across industry
verticals—including private equity sponsors—with expanded coverage
of middle-market lending. Today the group provides a full suite of
financing and fixed-income advisory services to both private and
public markets.
About Mitsubishi UFJ Financial Group, Inc.'s U.S. Operations
including MUFG Americas Holdings Corporation
The U.S. operations of Mitsubishi UFJ Financial Group, Inc.
(MUFG), one of the world's leading financial groups, has total
assets of $339 billion at
September 30, 2020. As part of that
total, MUFG Americas Holdings Corporation (MUAH), a financial
holding company, bank holding company, and intermediate holding
company, has total assets of $164
billion at September 30, 2020.
MUAH's main subsidiaries are MUFG Union Bank, N.A. and MUFG
Securities Americas Inc. MUFG Union Bank, N.A. provides a wide
range of financial services to consumers, small businesses,
middle-market companies, and major corporations. As of September 30, 2020, MUFG Union Bank, N.A.
operated 348 branches, consisting primarily of retail banking
branches in the West Coast states, along with commercial branches
in Texas, Illinois, New
York, and Georgia. MUFG
Securities Americas Inc. is a registered securities broker-dealer
which engages in capital markets origination transactions, domestic
and foreign debt and equities securities transactions, private
placements, collateralized financings, and securities borrowing and
lending transactions. MUAH is owned by MUFG Bank, Ltd. and
Mitsubishi UFJ Financial Group, Inc. MUFG Bank, Ltd., a wholly
owned subsidiary of Mitsubishi UFJ Financial Group, Inc., has
offices in Argentina, Brazil, Chile, Colombia, Peru, Mexico,
and Canada. Visit
www.unionbank.com or www.mufgamericas.com for more information.
About MUFG
Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the
world's leading financial groups. Headquartered in Tokyo and with more than 360 years of history,
MUFG has a global network with over 2,700 locations in more than 50
countries. The Group has over 180,000 employees and offers services
including commercial banking, trust banking, securities, credit
cards, consumer finance, asset management, and leasing. The
Group aims to "be the world's most trusted financial group" through
close collaboration among our operating companies and flexibly
respond to all of the financial needs of our customers, serving
society, and fostering shared and sustainable growth for a better
world. MUFG's shares trade on the Tokyo, Nagoya, and New
York stock exchanges. Visit
https://www.mufg.jp/english for more information.
1 As of September 30,
2020, at the exchange rate of USD=¥105.8
Press contact:
Assaf
Kedem
T: 212-782-4926
E: akedem@us.mufg.jp
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