Riding the coattails of a repricing wave and issuer-friendly market conditions, amend-and-extend activity in February rocketed to $11.6 billion, from $6.1 billion in January, marking the highest monthly total since January 2020, according to LCD. However, despite the massive jump in the volume of amend-and-extend deals, or A&E, the year-to-date tally of roughly $17.7 billion is still shy of the $23.3 billion in the first two months of 2020.
A&E activity in February also included an unusual caveat: Institutional extensions outpaced pro rata extensions, at $7 billion to $4.7 billion.
Typically, pro rata extensions — particularly revolver extensions — make up the lion's share of A&E activity in any given month, with institutional debt typically getting extended in the form of refinancings.
Seventeen borrowers extended credits in February. Some of the larger transactions (more than $500 million) included Great American Outdoors Group LLC ($4.095 billion term loan B), AECOM ($1.15 billion term loan A, $200 million revolver), Uber Technologies Inc. ($1.101 billion TLB), AMC Entertainment Inc. ($500 million TLA, $675 million TLA), TCW Group Inc. ($582 million TLB), Novolex ($500 million TLA), and Harsco Corp. ($700 million TLA).
Delving deeper into these extensions, in 2020, borrowers with pro rata loans focused on maturities coming due in 2021, 2022 and 2023, extending $14.2 billion, $15.8 billion, and $9.4 billion of debt, respectively. So far this year, borrowers have been focused on maturities coming due in 2023 and 2024, extending $3.4 billion and $2.4 billion, respectively. On the institutional side, borrowers in 2020 mostly focused on loans coming due in 2024 or later, extending $16.8 billion of that debt. So far in 2021, $5.3 billion of debt coming due in 2024 or later has been extended out.
Turning to upcoming debt maturities, the volume of loans coming due in 2021-2023 fell by roughly $18.5 billion between January and February to about $97.5 billion, against the backdrop of roughly $1.2 trillion in outstanding loan paper. The volume of loans coming due in 2021-2023 was about $177.7 billion less at the end of February than it was at the end of 2019. The volume of loans coming due in 2024 and 2025, meanwhile, shrank by about $87.8 billion between the end of 2019 and February 2021, while the par amount outstanding due 2026 or later grew by $243.8 billion.
Meanwhile, on the covenant-relief side, the volume of these transactions increased to about $6 billion in February, from about $2 billion in January, courtesy of five borrowers — all of which were pro rata executions.
Three of these borrowers — Summit Hotel Properties Inc., ABC Fitness Solutions and Royal Caribbean Cruises Ltd. — inked amendments that extended covenant waiver periods that each of these companies obtained earlier in the pandemic. This has been a trend that has picked up momentum as the pandemic continues to weigh on the economy.
Overall, though, covenant-relief activity has mostly been on par with the first two months of 2020, with seven covenant-relief transactions in the same time span as in 2020 and volume at $8 billion so far in 2021, compared to $9.1 billion in 2020.
And in terms of specific sectors, borrowers in real estate have seen the most — three covenant-relief transactions — amid this sample of 2021 covenant relief transactions.
Of course, one of the most fundamental differences in the covenant-relief landscape today, compared to the Great Recession, is that most current deals are in the pro rata segment, comprising revolving credits and amortizing term debt taken on by banks and financial institutions. A decade ago it was institutional issuers, whose debt is primarily bought by collateralized loan obligations and retail/mutual funds and exchange-traded funds.
In 2009, the volume of institutional and pro rata covenant-relief activity was roughly $140 billion and $97 billion, respectively. Fast forward to 2020 and institutional deals accounted for just $20 billion of the $161 billion in covenant-relief volume, according to LCD.
As usual, we will note that because more than three-quarters of the roughly $1.2 trillion in outstanding U.S. leveraged loans are covenant-lite (and pro rata deals are required to have covenants), it stands to reason that most of today's cov-relief activity is for pro rata deals. For the record, in February, the cov-lite share of the S&P/LSTA Leveraged Loan Index was at 84.2%, up from 81.9% in February 2020. For reference, at the end of 2008, before the peak of covenant amendment activity during the last financial crisis, the cov-lite share was just 15.5%.