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Battle Lines Drawn During the Syndication Process


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The syndication process is proving to be contentious thus far in 2018 with the vast majority of deals now feeling the pressure of investor pushback during the syndication phase. Some 89% of deals are seeing documentary or pricing changes made, up from 77% in 2017.

It is not just the overall number of deals affected but also the extent of the changes, with a raft of detailed changes being negotiated during this phase. Each deal is now likely to see an average of 6.1 changes made per deal during syndication. This compares with an average of 3.33 for 2H 2017 and just 1.6 for 1H 2017. In particular, sponsor-lead deals have proven to be particularly contentious with an average of 6.65 changes per deal this year compared with 4 changes per non-sponsor deal.

European leveraged loans changes made during syndication

While the syndication phase has always highlighted the tug of war between Borrowers, reaching for ever greater flexibility, and Investors, grasping to retain the rights and protections that lenders have enjoyed, it is clear that some deals are pushing the boundaries. This is can be seen by looking at the documentary changes being sought by Investors – and conceded by Borrowers.

Our Representative Loan Terms (RLT) database shows examples of deals this year with more than 30 changes made to induce investors, with changes being conceded over MFN protection; synergies and cost savings; debt cap and restricted payments – among others.

Whether this pushback is a function of Investor unease with particular credits or a more general reflection of dissatisfaction with loosening terms is unclear.

Documentary Terms at the Forefront

Borrowers, on sponsor-led deals in particular (where the desire to establish precedents is key), continue to push for ever greater flexibility while investors are grasping to retain the rights and protections that lenders have enjoyed in the past. While the major focus of the changes in syndication we have seen in 2018 have been in the traditional battlegrounds of pricing, debt capacity and restricted payments, we are also seeing Investor pushback, in areas which have previously been less contentious, such as prepayments and transfers.

Most highly negotiated areas of change 2018 YTD 

Most highly negotiated areas of change during syndication of European Leveraged Loans

 

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Debt Explained’s Market Maker and Representative Loan Terms (RLT) databases offer unique oversight of the European high-yield bond and leveraged loan markets, with more than 550 and 250 searchable terms respectively. A staple resource for all leveraged finance market participants – including capital markets bankers, legal advisors and asset managers – Debt Explained data reacts to the market in real time: subscribers receive detailed deal snapshots on new issues as information is released.

Debt Explained was founded by Stephen Mostyn-Williams in 2009, a Senior Partner at four international law firms and the co-founder of the European High Yield Association, now AFME. We are staffed by experts in leveraged finance with extensive experience in Capital Markets and Banking & Finance. All have deep knowledge of our product areas.

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