By Katy Burne
The loan-market pipeline began flowing in earnest Thursday,
driven by companies' need to pay for purchases and their desire to
borrow while investor appetite for corporate debt is strong.
Leading the spate of deals was a giant $1.92 billion high-yield
or "leveraged" loan for cable provider WideOpenWest, which is
buying Internet provider Knology (KNOL). That was the biggest loan
since Chesapeake Energy (CHK) borrowed $4 billion via a term loan
in mid-May, according to Thomson Reuters unit Loan Pricing
Corp.
Companies are looking to complete financings while the going is
good and before earnings blackout periods cause new issuance to dry
up in the coming weeks.
"The forward calendar of loans has picked up," said Bill
Eastwood, head of trading at Newfleet Asset Management, which has
$10 billion in fixed-income assets under management and
participated in the WideOpenWest transaction. "We're seeing some
money coming into retail funds, and this is a pretty good
lineup."
Yields on a Credit Suisse index tracking leveraged loans fell to
6.5% this month, from 7.72% in May. While yields on fixed-rate
high-yield bonds are higher, around 7.32%, loans with floating
rates offer the security of claims on company assets and a hedge
against interest-rate increases.
The gap between yields on leveraged loans and junk bonds is
about 1.37 percentage points, 30% narrower than at this time last
year. In other words, investors are giving up relatively little to
pick up that cushioning--and at the same time are getting decent
yields.
The supply of newly announced leveraged loans hitting the market
is now at $15 billion as of Thursday, compared with $10 billion as
of Friday.
At the same time, investor demand is strong. Funds dedicated to
loans have attracted nearly $390 million of new cash since
mid-June, turning positive after three straight weeks of outflows
beginning in May that totaled $540 million, according to fund
tracker Lipper.
"U.S. loan investors have been waiting for this all year: a
new-issue pipeline that's growing and dominated by new money and
[mergers and acquisitions]-related financings," said Ioana Barza,
senior analyst at LPC.
Also in the market is a new deal backing the purchase of a
majority stake in retailer Party City. That features a seven-year,
$1.05 billion term loan and about $700 million of bonds, according
to people familiar with the financing.
Separately, Supervalu Inc. (SVU) began gauging investor interest
in a new $850 million loan Thursday and put in motion plans for a
new $1.65 billion revolving credit line, a day after the
supermarket operator said it had put itself on the block.
The $1.92 billion six-year term loan for WideOpenWest Finance
was set to price Thursday at five percentage points over the London
interbank offered rate, with a 1.25% Libor floor. The company also
priced $1.02 billion of high-yield bonds this session and is
putting in place a $200 million revolver.
-Write to Katy Burne at katy.burne@dowjones.com