US leveraged loan market smashes annual issuance record

With more than two months remaining in 2021, the U.S. leveraged loan market has already set a full-year issuance record, at $505 billion, including anticipated launches through Oct. 12, according to LCD. This tops the previous full-year peak, set in 2017, of $503 billion.

Private equity activity has been driving the 2021 borrowing boom. Year-to-date loan volume of $319 billion already is another full-year record, some 8% above the prior full-year high of $295 billion in 2018.

Comparing 2021 to 2018 shows that while buyouts dominate as uses of proceeds — accounting for roughly 40% in each year — the biggest growth is from dividend recaps. New-issue volume raised for this purpose was $56.1 billion through Oct. 12 (yet another new annual record), up 84% from 2018. In fact, this is very close to the volume of private equity-backed refinancings, at $57.8 billion. To put the 2021 number into historical context, in the 10 years prior to the onset of the coronavirus pandemic, sponsored refinancing-related issuance exceeded dividend recap issuance by roughly 60%, on average.

Of course, dividends alone do not account for this year's issuance surge. Overall M&A activity, including those involving non-sponsored companies, is running at record pace. Through Oct. 12, $264 billion has been issued for this purpose, 12% ahead of the pace set in 2018. That year finished at an annual record of $275 billion.

M&A activity is driven by the lower-rated transactions. In fact, volume of loans issued to borrowers rated single-B has also set an annual record, with $360 billion issued through Oct. 12, according to LCD.