Middle market loan issuance stabilizes in 2Q, strong 2H expected

NEW YORK, July 11 (LPC) – US middle market syndicated loan issuance jumped 48% to US$39.6bn in the second quarter of 2019 from meager levels in the first quarter, and is poised to gain steam as the second half of the year progresses.

Even though syndicated lending to middle market borrowers was down 26% compared to year-ago volume, the improving performance is encouraging after volatility roiled the loan space late last year and stalled issuance in early 2019.

“Clearly the volatility at the end of 2018 had a negative impact on all segments of the loan market in the first quarter,” said Dan Chapman, managing director of Loan Syndicate & Sales at U.S. Bancorp. “Stability returned in the second quarter, contributing to stronger results versus the first quarter. That trend should continue.”

Issuance rose across middle market segments in the second quarter. Syndicated middle market sponsored volume increased to US$13.61bn, a 10% jump from the first three months, but was 41% lower than year-ago levels. At US$25.99bn, syndicated non-sponsored volume improved by 80% from the first quarter though it was down 15% year-over-year. Institutional lending notched a 20% quarter-over-quarter rise versus a 49% decrease from a year ago.

Significant refinancing volume boosted lending levels in the last two years. But with many issuers having already cut borrowing rates, the resulting dearth of such activity has been a contributing factor to 2019’s lagging numbers.

Overall new money volume was also lower in the second quarter compared to last year. Lenders do, however, expect improving new money lending opportunities to drive issuance in the second half.

“Because of the growing interest in situational or event-driven M&A, including acquisitions, divestitures, and spinoffs, as well as dividends to family-owned businesses, there may be a bias to frontload some of that activity, especially as we head into an election year,” Chapman said. “That bodes well for middle market lending in the second half.”


A handful of mid-sized borrowers are currently in market. Polypropylene container producer Anchor Packaging is wrapping up syndication of a US$390m first-lien term loan backing the company’s sale to private equity firm Jordan Company.

The seven-year term loan B is guided at a range of 400bp-425bp over Libor with a 0% floor. The loan, which is being arranged by Credit Suisse, Goldman Sachs, Nomura, Antares Capital and Neuberger Berman, is offered at an original issue discount of 99-99.5. Commitments are due Thursday.

The company is also privately placing a US$95m second-lien term, sources said.

Also on Thursday, specialty aerosol products maker PLZ Aeroscience lauched a US$719m refinancing transaction. Middle market lender Antares leads the deal with joint lead arranger Bank of Montreal. Commitments are due July 23.

Lenders are not particularly deterred by ongoing uncertainty and tensions around trade and tariffs, which prompted Federal Reserve Chairman Jerome Powell to signal on Wednesday that an interest rate cut is likely later this month, nor by the ever looming possibility of geopolitical tensions.

“It’s all about confidence,” said a middle market direct lender. “There is no major contagion out there and the Fed is so openly accommodative. Sponsors and asset managers feel this can keep going,” the lender said of the current economic cycle.

Ample appetite from traditional bank lenders as well as direct lenders and private credit investors is expected to accommodate demand for loans from corporate and private equity-backed borrowers. Even as debt capital providers are increasingly selective with respect to portfolio exposure and competition for assets both between and among banks and non-banks continues to be fierce, market participants agree there is still room for growth and opportunities remain to book more credits.

“We think there will be an uptick in activity in the second half. Banks are very hungry for new middle market deals and lenders will be supportive,” Chapman said. (Reporting by Leela Parker Deo. Editing by Jon Methven)

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