Leveraged finance gets stuck on repeat
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Leveraged finance gets stuck on repeat

The pressure of money weighing on the high-yield and leveraged loan market has given rise to the kind of market excess that optimists thought would not be seen again for a very long time. Can the cycle really be set to repeat itself so soon? Louise Bowman reports.

LAST MONTH A high-profile US corporate with a well-known credit story sold $500 million of six-year bullet senior unsecured notes in a deal arranged by Bank of America Merrill Lynch, Barclays, BNP Paribas and RBS. The deal carried the kind of very light covenant package (excluding a debt covenant, restricted payments covenant and asset sales covenant) typically given only to the strongest credits and the notes priced at 10% with a discount of 98.89 to yield 10.25%.

So far, so unremarkable. But the corporate involved was MGM Studios. The same triple-C rated MGM Studios that filed for Chapter 11 bankruptcy protection in New York in early November. The same MGM that lost $318 million in the third quarter of this year and has had to write down its investment in Las Vegas’s City Center complex by $357 million. And the same MGM that has been in the hands of its lenders since it succumbed to the weight of its $4 billion debt burden.

Not a traditional investment-grade credit risk, one might think. And the MGM deal is just one of a series of recent transactions in the US high-yield market that have caused some participants to question whether the past three years ever really happened.

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