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Amend-and-extend leveraged loan activity cools in April, yet still outpaces 2020

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Amend-and-extend leveraged loan activity cools in April, yet still outpaces 2020

Following two blockbuster months of borrowers extending loan packages totaling more than $28 billion, amend-and-extend activity cooled in April, to $6.8 billion, from $16.5 billion in March, which was the highest monthly total since January 2020, according to LCD. Despite the decrease, the $41 billion of amend-and-extend, or A&E, volume in 2021 through April is outpacing the first four months of 2020 and is already more than half of the annual volumes recorded in each of 2020 and 2018.

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Of the 10 amend-and-extend transactions in April, only one deal was for institutional debt: the extension of Surgery Partners, Inc.'s $1.42 billion term loan by two years, to August 2026, which was completed alongside a $125 million fungible add-on. The rest of the A&E activity represented pro rata executions, with two standouts being the extension of WEX Inc.'s pro rata credit facility to April 2026, from July 2023, which was completed alongside a refinancing term loan B and the extension of Aramark Services, Inc.'s revolver and its multiple currencies term loan A package that was also completed alongside a refinancing term loan B.

Stepping back and looking at extensions overall, borrowers this year with pro rata loans have been looking mostly down the road, focusing on maturities coming due in 2023 and 2024, extending $10 billion and $8.5 billion of debt, respectively. In 2020, borrowers with pro rata loans focused more on upcoming maturities, extending $14.2 billion due in 2021, $15.8 billion due in 2022 and $9.4 billion due in 2023. On the institutional side, borrowers have been focusing on loans coming due in 2024 or later, extending $12.6 billion of that debt. Last year, borrowers with institutional debt also primarily focused on 2024 and beyond, extending $16.8 billion of debt.

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Turning to upcoming debt maturities, the volume of loans coming due in 2021-2023 fell by $9.5 billion between March and April to about $76.9 billion, against the backdrop of about $1.2 trillion in outstanding loan paper. The volume of loans coming due in 2021-2023 was about $198.3 billion less at the end of April than it was at the end of 2019. Meanwhile, the volume of loans coming due in 2024 and 2025 shrank by about $135.1 billion between the end of 2019 and April 2021, while the par amount outstanding due 2026 or later grew by $348.4 billion.

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Covenant-relief volume in April consisted of three transactions representing $1.375 billion in debt, down from the five transactions in February and March that represented $6.1 billion and $3.4 billion of debt, respectively. And all three of April's covenant-relief transactions were pro rata executions.

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April's covenant-relief activity came in courtesy of three borrowers: Ebix, Inc., Enviva Partners LP and Daseke Inc. Only one of these — the covenant-relief for Ebix — was an amendment that extended a covenant waiver period that the company obtained earlier in the pandemic. This trend has picked up momentum as the pandemic continues.

Overall, though, year-to-date covenant-relief activity has been down significantly when compared to last year. So far this year, there have been 15 covenant-relief transactions through April versus the 40 that happened during the same time period in 2020. Of course, the first two quarters of 2020 saw a surge of over 120 covenant-relief deals as companies scrambled to find flexibility at the onset of the pandemic. Otherwise, 2021 has been roughly on par or slightly below the years before the pandemic.

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In terms of specific sectors, borrowers in Real Estate and Manufacturing & Machinery have seen the most — three covenant-relief transactions — amid this sample of 2021 covenant relief transactions.

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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 about $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.

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As usual, we will note that because more than three-quarters of the approximately $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 April, the cov-lite share of the S&P/LSTA Leveraged Loan Index was at 84.9%, up from 82.1% in April 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%.

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