TransDigm Group Boosts Dividend Financing as Loan Rates Increase

TransDigm Group Inc. (TDG), an aircraft-components maker, increased the loan it’s seeking to fund a shareholder dividend to $900 million from $700 million as rates on riskier bank debt rise.

The average spread on loans sold to non-bank lenders averaged 4.03 percentage points more than lending benchmarks as of June 20, according to Standard & Poor’s Capital IQ Leveraged Commentary & Data. That’s up from 3.68 percentage points in May, which was the lowest monthly level since November 2007.

TransDigm is seeking to increase its term loan after Federal Reserve Chairman Ben S. Bernanke outlined a timetable last week on how the central bank may curtail its unprecedented stimulus, sparking price declines throughout credit markets. Leveraged-loan prices have fallen to the lowest since Feb. 12 in the wake of Bernanke’s comments on June 19.

“The loan market was not nearly as volatile as the bond market, as it appears that investors may be shifting duration rather than shifting risk,” Wells Fargo & Co. analysts Dave Preston and Jason McNeilis wrote in a June 21 research report.

Leveraged-loan funds had inflows totaling $1.4 billion last week, their third largest on record, according to JPMorgan Chase & Co. High-yield bond mutual funds had $333 million of outflows last week, after investors pulled $3.3 billion the week before.

The TransDigm loan, being arranged by Credit Suisse Group AG, is being offered to investors at 3 percentage points more than the London interbank offered rate, with a 0.75 percent minimum on the lending benchmark, according to a person with knowledge of the transaction who asked not to be identified because terms are private.

Invesco ETF

Invesco Ltd. (IVZ)’s exchange-traded fund, which invests in the largest first-lien loans, recorded its biggest outflow in a single day.

Invesco’s PowerShares Senior Loan fund, started two years ago as the first ETF solely dedicated to purchasing floating-rate debt, reported redemption of 3.2 million shares yesterday, valued at about $79 million, according to data compiled by Bloomberg. This was the second time in the last week and the only occasions in 2013 that the fund, whose assets have tripled since the start of the year, has seen outflows.

“Despite the widespread volatility in the equity and credit markets,” more than $5 billion of collateralized loan obligations have been raised this month, according to the Wells Fargo report.

Bank of America Corp. raised a $417.8 million CLO for LCM Asset Management LLC, according to a person with knowledge of the deal.

Loan Prices

The fund, LCM XIV, includes a $250 million slice rated AAA that has a coupon of 115 basis points more than Libor, said the person, who asked not to be identified because the terms are private.

Leveraged-loan prices averaged 97.22 cents on the dollar yesterday, according to the S&P/LSTA U.S. Leveraged Loan 100 index. The high-yield, high-risk debt has returned 2.11 percent this year through yesterday, compared with 0.38 percent for junk bonds.

Armacell International Holding GmbH increased the rate on about $426 million of loans backing its buyout by Charterhouse Capital Partners LLP. The German insulation company is offering a first-lien term loan in euros at 4.75 percentage points more than benchmark rates, and a term loan in U.S. dollars 4.5 percentage-point margin, according to two people with knowledge of the matter.

The spreads widened from an earlier proposed margin of 3.75 percentage points to 4 percentage points on the euro portion, and 3.5 percentage points to 3.75 percentage points on the dollar piece.

“The primary loan market is neatly bifurcated,” Wells Fargo’s Preston and McNeilis wrote in the report. “Quality credits and good structures flex tighter, but issuer pushback on other credits has led to many pulled deals.”

To contact the reporter on this story: Christine Idzelis in New York at cidzelis@bloomberg.net

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

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