Syniverse Debt Leads New Issues Higher as 2010 Leveraged-Loan Returns Peak

Syniverse Holdings Inc., the mobile- phone messaging company that Carlyle Group is buying, leads at least seven companies whose leveraged loans rallied after they started trading this week as returns for the debt in the U.S. peaked for 2010.

The issuers, including MDA Lending Solutions, bought by TPG Capital, and IHealth Technologies Inc., seeking cash to pay a dividend to private-equity owners, completed raising about $4 billion in loans, according to data compiled by Bloomberg.

The S&P/LSTA US Leveraged Loan 100 Index gained 9.2 percent this year as of yesterday, extending record returns of 52.2 percent in 2009, as a leading economic index showed that the Federal Reserve’s efforts will help sustain the economic recovery and former Chairman Alan Greenspan said U.S. gross domestic product may grow by as much as 3.5 percent next year. Investor demand for loans doubled this year as borrowers agreed to pay more interest than existing debt to refinance and market liquidity rose as issuers repaid bank debt with bonds.

“Investors are long cash, the secondary market is relatively tight and new deals are certainly structured in a manner that’s more attractive than existing loans,” said John Fenn, a credit market analyst at Citigroup Inc. in New York. “They come with Libor floors and relatively attractive coupons, they have better covenant protections. The demand for such product is self evident, and it’s highlighted more by the fact that investors have money to put to work.”

Banks arranged $360.1 billion of loans for junk-rated companies this year, up from $169.3 billion in 2009 and 25 percent more than the previous year, Bloomberg data show.

Junk-Bond Sales

Issuers sold a record $289.5 billion of high-yield, high- risk bonds this year, up from a previous high of $163 billion in 2009, according to Bloomberg data. About $65 billion of the borrowings in 2010 were to refinance loans, up from $44 billion last year, JPMorgan Chase & Co. analysts led by Peter Acciavatti said in a Dec. 10 report.

Junk bonds and leveraged loans are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

The Conference Board, a New York-based research group, said Dec. 17 that 9 out of 10 components in its leading economic indicators index improved in November, the broadest advance in seven years. The measure is designed to gauge the outlook for growth for the next three to six months.

Greenspan said in a Dec. 16 interview with Bloomberg News that the U.S. economy “unquestionably has some momentum.” He said Pacific Investment Management Co.’s 3 percent to 3.5 percent expansion forecast for the last quarter of next year is “reasonable.”

Raising Forecasts

Mohamed El-Erian, chief executive officer of Pimco, the world’s largest bond fund, joined other economists and investors Dec. 9 in raising forecasts for U.S. growth, following President Barack Obama’s agreement with Republican lawmakers to prolong income-tax cuts enacted in 2001 and 2003 by the George W. Bush administration and the central bank’s second round of monetary easing, a plan to buy as much as $600 billion of Treasuries that started last month.

The Fed cut the federal funds rate for overnight loans among banks to a record low range of zero to 0.25 percent in December 2008 and kept it there to help stimulate lending.

“For 2011, prospects for leveraged loans look bright, with a better GDP outlook (in light of the recent tax compromise), low defaults, strong balance sheets, and an upward bias to interest rates supporting demand for loans,” Acciavatti-led JPMorgan analysts said in a Dec. 17 report.

‘Attractive’ Spreads

Pricing for loans rated B+ or B is 6.52 percentage points as of today, compared with a low of 2.14 percentage points in February 2007, according to Standard & Poor’s Leveraged Commentary and Data. Six out of 10 lowest spreads on record were in 2007, S&P LCD said, when banks competed to finance the biggest takeovers.

The average all-in spreads assume three-year maturity on loans and include upfront fees, original-issue discounts and floors on the London interbank offered rate, a lending benchmark also known as Libor.

“Spreads are still attractive, it’s an overall market question: if we continue to believe that the economy and credit are improving, that’s an environment where spreads are supposed to get tighter,” Citigroup’s Fenn said yesterday in an interview. “The market can stay disciplined, but at some point you draw the conclusion you don’t need to be as compensated for the risk you’re taking.”

Syniverse issued its $1.025 billion LBO loan due in seven years at 99 cents on the dollar. It started trading at 100.75 cents and then rose to 101.25 cents, according to information provider Markit Group Ltd.

MDA, IHealth

The Tampa, Florida-based company pays an interest rate 3.75 percentage points more than Libor, with a 1.5 percent floor on the lending benchmark. Carlyle agreed to take Syniverse private in a $2.6 billion transaction.

TPG, the Fort Worth, Texas-based private-equity firm, financed its $850 million acquisition of MDA Lending, previously a MacDonald, Dettwiler & Associates Ltd. unit providing information- and settlement-services to real estate lenders, with a $350 million term loan.

MDA issued the debt at 98.5 cents on the dollar and it rose to 99 cents, Markit said. The company has a spread of 5.5 percentage points over Libor, with a 1.5 percent floor on the lending benchmark.

IHealth’s $175 million term loan funding a payout to for GS Capital Partners, a unit of Goldman Sachs Group Inc., and Oak Investment Partners has a margin of 6 percentage points more than Libor, with a 1.75 percent floor on the lending benchmark. The debt was bid up 1 cent at 99 cents on the dollar from its issue price after it was allowed to trade, according to Markit.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.