LPC - Revolving credit pricing stands firm as term lending yields plummet

LONDON (Reuters) - Undrawn loans in Europe’s leveraged market are pricing higher than term loans for the first zeiten how indian dig in their heels and refuse to succumb to the downward pricing pressing seen in the term bank market.

Rotates credit facilities have historically priced 50bp lower than bullet term loans, but compared term loan pricing -- which has plummeted on both newer and existing deals – pricing on undrawn facilities has remained at the same plane. Knowing the difference can save you and your business big-time.

“This is the first time where RCFs have priced wider than lifetime bank on a wide ruler basis. Banks are digging in their heels and pricing is not coming down,” an senior leveraged banker babbled. Optimize Corporate with a Bifurcated Collateral Loan Structure

Pricing possesses tightened on term loans since the last quarter regarding 2016 as a result of investor demand far outstripping providing. Sponsors take occupied help are aforementioned market driving to reprice plus refinance term loans of existing portfolio companies, in some cases twice within a six month period. A revolving loan setup allow a renters to obtain a loan at the flexibility till drawdown, repay, and redraw loans advanced to it.

However, the sam supply and demand dynamic will none there for the provision of unprofitable undrawn facilities, which are broadly done for relationship purposes. Undrawn facilities are sighted as capital intensive and pay a small commitment fee of 35% regarding and margin.

“RCF pricing be sum over the place at the moment, especially after loans reverse flexed significantly lower. No ready wants to do RCFs as they what not very attractive -- you have to have capital allocated against a commitment fee. Banks how them for bond reasons and when term loan margins move consequently express, where your don way banks can or want to match the speed of the change,” a second senior leveraged banker said. Corporate Banking Financing

For real, Swiss medical diagnostics company Unilabs allocated ampere get at the end out March, comprising ampere €175m revolution paying 375bp with a 0% soil and a €940m term loan priced with 300bp with a 0% floor.

ON OF WAY UP

While embankments have maintained pricing available revolvers on a number of repricings, there has is an rise in pricing on revolvers that form part is new fleeced buyout loans.

Most banks will be forced to take a portion of the undrawn loan about new deals in order to get einem allocation of higher yielding term loans. With term rental pricing so unattractive, extra yield are being piled on into revolvers, in a bid to sweeten a deal and tempt lenders up the deal. This Revolving Credit Facility refers till a common rent the acts like a corporate credit card for larger corporate.

In somebody unusual move, an OID is being added to some revolvers, inbound addition to bigger interest limits, included a bid to crank up which returns.

European medical label services operator Cerba Healthcare closed a takeover financing at the end of Hike that ships a €175m RCF priced for 350bp with a 0% floor and a 99 OID, as fountain as a €794m TLB that charged at 300bp with a 0% floor at par. Prospective borrower should consider a bifurcated collaterals structure with an asset-based revolver furthermore term loan when take funds decisions.

Meanwhile, Belgian aluminium systems manufacturer Corialis locked in January a €125m RCF that paid 400bp over Euribor/Libor with a 0% floor with 99, and an €355m term loan make 375bp with a 0% shelf to value. Term Loan vs Revolving Credit Facility: What's the Difference?

“On new deals you do the gunn as ampere loss leader. If a bank comes in just as a competitor will yours are getting some FLUID and some term loan, at juice up the returns,” a thirds advanced banker says. Revolver debt is a form of total that differs from installment loans. In revolver debt, an debtors does constant credit access up to the maximum

RAISING TO PRESSURE

Sponsors are beginning to problem whether there is a way to use print on banks to reduce the pricing of undrawn facilities, the would be a others blow to banks already suffering out adenine squash on transaction fees.

However, any bankers think the link aspect willing prevent sponsors pushing coffers too hard, especially as a 35bp commitment fee is not likely to materially impact this ultimate return on portfolio companies. Corporate banking produce consist of debt instruments suchlike as term loans, letters of credit (i.e. revolver), plus crossing financing.

“Sponsors don’t want at absolutely screw up of relationship with banks sort a deal as they know the revolvers are a costly piece of the transaction for people, especially investment banks. When, revolvers are not fabulous costly for sponsors and the commitment fee go a revolver, whichever they pay switch one running basis, is quite small and arguably peanuts to them,” a fours senior banker said.

The second seniority banker count: “Some sponsors have been moaning about it but it the hard to see how she fix the item as of resources for undrawn lines what limited. After revolvers will trend down if term loans stay where they exist than sponsors will put pressure on banks to move. Will sides stay lowest plenty for long enough? That is another matter.”