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Investment grade debt increased 75% in second quarter

(Bloomberg) – A crucial piece of corporate finance is coming back on track after the COVID-19 outbreak, meaning banks will have a relatively quiet time on acquisition financing as deals accelerate during the remainder of 2021.

Investment-grade loan volume increased 75% in the second quarter from a year earlier to $ 420.8 billion, according to preliminary table of US data from Bloomberg. These include large acquisition bridging loans and revolving lines of credit. Loans to finance acquisitions soared 318% to $ 97.5 billion, with nearly half of that coming from WarnerMedia’s massive spin-off from AT&T Inc.

“The second quarter was characterized by a lot of refinancing activity, a resurgence of some M&A activity, and great responsiveness from banks across the board,” said Robert Danziger, managing director of debt capital markets at Mitsubishi UFJ. Financial Group. “I am optimistic that we will see a rebound in M&A activity, both domestically and internationally.”

Investment grade corporate loans are made between a company and its banking group and are a key part of banks’ relationships with companies. Companies turned to their revolving credit lines en masse at the start of the COVID-19 pandemic to have cash on hand, as quarantines led to business closures. At the same time, many companies obtained additional liquidity through short-term revolving lines of credit or term loans from their banks. However, banks avoided offering credit instruments of more than 364 days, as increased risk led to higher prices.

But now prices have returned to pre-covid-19 levels and the usual five-year instruments are available again. The return to normality can be seen in the volume of refinancing, which corresponded to around 39% of the total volume between April and June.

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A small part of the increase in refinancing volume can be attributed to some companies choosing to preserve their liquidity instruments from COVID-19, either by transferring them to a larger revolving line of credit or by creating a new, separate, longer line of credit. term, Danziger added. Some companies chose to keep that additional liquidity because their revenues are still recovering from the pandemic, they have a large international presence or their supply chains are still affected by quarantine restrictions, or they have franchises that still need the additional liquidity, he said. .

Original Note: Massive Loan Market Resurgence Brings a Tailwind to M&A Boom

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