Bally, Iron Mountain Borrow as Junk-Loan Assets Swell to Record

Bally Technologies Inc. (BYI), a maker of slot machines and lottery systems, proposed the rate on $1.1 billion of acquisition financing while Iron Mountain Inc. (IRM) doubled its credit line as deposits swelled loan mutual funds.

Bally’s term loan will back its purchase of table-gaming supplier SHFL Entertainment Inc. and Iron Mountain is tapping its revolver to pay down debt as the document-storage company prepares to convert into a real estate investment trust. Leveraged-loan assets under management have risen this year to a record $115 billion, with investors adding $1.5 billion this week to retail funds that buy the floating-rate debt, according to JPMorgan Chase & Co.

Record demand for junk loans is helping riskier companies including Rue21 Inc. obtain debt financing. Individual investors are seeking floating-rate debt on expectation the Federal Reserve may scale back this year its unprecedented monetary accommodation designed to stimulate the economy, spurring a rise in interest rates.

“A heightened attention on rate risk is leading to incredible growth in the retail base for leveraged loans,” JPMorgan analysts Nelson Jantzen and Peter Acciavatti wrote in a note. “Demand for floating-rate product is displaying no signs of abating.”

Las Vegas-based Bally is asking lenders for a $1.1 billion loan that pays interest at 3.25 percentage points more than the London interbank offered rate, with a 1 percent floor on the lending benchmark, according to a person with knowledge of the deal who asked not to be identified because terms are private. The loan, which is being arranged by Wells Fargo & Co., may be sold to investors at a discount of 99.5 cents on the dollar.

Rue21 Loan

Leveraged loans have junk-category ratings of less than Baa3 by Moody’s Investors Service and below BBB- at Standard & Poor’s. The debt pays interest based on the variable London interbank offered rate. Three-month Libor was set at 0.265 percent today.

Rue21, the Warrendale, Pennsylvania-based teen apparel shop operator being acquired by Apax Partners, is seeking a $533 million term loan that will pay interest at 4.5 percentage points to 4.75 percentage points more than Libor, with a 1 percent floor on the lending benchmark, according to a person with knowledge of the deal who asked not to be identified because terms are private.

Iron Mountain doubled the size of its revolver to $1.5 billion to help pay down $450 million of an existing loan that matures in 2016. The Boston-based company, which has a junk-grade rating of BB- from S&P, also made changes to its credit pact to pave the way for a conversion to a REIT, according to a regulatory filing.

Shipping Loans

Leveraged loan prices averaged 98.13 cents on the dollar today, up more than 2 cents since the end of last year, according to the S&P/LSTA U.S. Leveraged Loan 100 index.

Commerzbank AG, the German lender trying to offload soured shipping loans, reduced its credit portfolio in the crisis-hit sector by 7.1 percent in the second quarter even as it stuck to its forecast that the market will not bottom out until 2014.

Commerzbank’s shipping loans contributed to ratings downgrades by Moody’s and S&P in April and May, respectively. By 2016, Commerzbank wants to further reduce its portfolio in this segment to about 14 billion euros ($18.7 billion), while a date for a complete exit is too difficult to predict, Stefan Otto, head of the shipping unit, said in June.

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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