As we round out the third quarter, term loan B issuance so far this year has managed to surpass even 2017 levels. In fact, this year’s total is second only to activity levels reached in 2007, over a decade ago. With fourth-quarter issuance expected to be high, as long as we do not experience yet another major disruption, 2021 is on track to register the highest-ever annual rate of TLB issuance.
Driving factors
Pricing moved tighter at the start of the year and in doing so released pressure that had been stored up during lockdowns across Europe in 2020 into the markets. Issuance in March spiked to its highest monthly level (EUR 37.7bn) since March 2017 – which was in turn the second-highest amount on record next to March 2007’s EUR 40.4bn total.
Both mandatory refinancing because of upcoming maturities and opportunistic price-tightening took place early on in 2021. However, over the course of the year, new-money facilities have accounted for increasing proportions of overall activity. New-money activity has risen from under 60% to over 80% of activity over the course of the year.
Even though these are record volumes for the first nine months of the year, a poll during the LMA’s recent virtual conference revealed that over 60% of attendees expect overall volumes to increase in EMEA by more than 10% in the next 12 months.
Riding the CLO wave
TLB volumes have been tracking CLO volumes keenly, and now rely on CLOs as a source of funds more than ever. As such, this year’s spike in TLB volumes can be seen directly in the equivalent CLO volumes raised.
It is worth keeping in mind that the lack of activity in 2020 elevated this year’s TLB volumes thanks to an increase in demand for loans generated by CLOs, as well as in supply from those borrowers requiring financing in the primary loan market. The lack of this boost from the previous year as the backlog of deals clears, in addition to fiscal and likely monetary tightening, may spell an end to the current surge in activity.
A look at the years following the previous two spikes in activity – 2007 and 2017 – fosters meaningful concerns for issuance in 2022. And beyond macro factors affecting issuance, will both high-yield bond and direct-lending activity continue to eat into TLB issuance?
