Amend-and-extend leveraged loan activity picks up; covenant-relief volume slows

Amend-and-extend activity in the U.S. leveraged loan market picked up in May, with the volume of extensions rising to $8.7 billion from $6.8 billion in April, courtesy of 11 transactions, according to LCD. The volume of amend-and-extend deals through May was $49.7 billion, topping the volume recorded during the first five months of 2020 by more than $10 billion.

The 11 transactions included two institutional deals — Allied Universal Corp.'s extended $2.192 billion term loan B and Certara Inc.'s $303 million term loan. Some of the larger pro rata extensions included the extension of NortonLifeLock Inc.'s $2.25 billion pro rata facility, Global Partners LP's $1.25 revolving loan package and TransDigm Inc.'s extension of its $608.5 million revolver.

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 $11 billion and $11.3 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 $15.1 billion of that debt. Last year, borrowers with institutional debt also primarily focused on 2024 and beyond, extending $16.8 billion of debt.

Turning to upcoming debt maturities, the volume of loans coming due in 2021-2023 fell by $4.13 billion between April and May to about $72.8 billion, against the backdrop of about $1.2 trillion in outstanding loan paper. The volume of loans coming due in 2021-2023 was about $202.5 billion less at the end of May than it was at the end of 2019. Meanwhile, the volume of loans coming due in 2024 and 2025 shrank by about $145.6 billion between the end of 2019 and May 2021, while the par amount outstanding due 2026 or later grew by $391 billion.

Covenant-relief volume, meanwhile, continued to slow in May, with just one covenant-relief transaction recorded in the month — a covenant suspension period extension for Clear Channel Outdoor LLC.

Overall, year-to-date covenant-relief activity has been down significantly compared to last year. So far this year, there have been 16 covenant-relief transactions through May versus the 40 that happened during the same time period in 2020. Of course, the first two quarters of 2020 featured a surge of more than 120 covenant-relief deals as companies scrambled for flexibility at the onset of the pandemic. In terms of volume, covenant-relief activity through May this year is at a decadelong low.

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

Of course, one of the fundamental differences in the covenant-relief landscape today, compared to the Great Recession, is that most current deals are pro rata, comprising revolving credits and amortizing term debt taken on by banks and financial institutions. A decade ago covenant-relief activity tilted toward 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.

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 covenant-relief activity is for pro rata deals. For the record, in May, the cov-lite share of the S&P/LSTA Leveraged Loan Index was at 85.2%, up from 82.4% in May 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%.