BDC Quarterly Trends and Analysis

Transcription

1 2Q17 A Debtwire Middle Market Special Report 2Q17 BDC Quarterly Trends and Analysis Quarterly Overview of Alternative Lenders to the Middle Market

2 2Q17 Primary Issuance Overview CONTENTS METHODOLOGY: 3 FIRST LIEN QUARTERLY TRENDS, CHARTS AND ANALYSIS: 4-5 SUBORDINATE QUARTERLY TRENDS, CHARTS AND ANALYSIS: 6-7 UNITRANCHE QUARTERLY TRENDS, CHARTS AND ANALYSIS: 8-9 INDUSTRY BREAKDOWN AND ANALYSIS: 1-13 CONTACT INFO: 14 APPENDIX 2Q17 PRIMARY ISSUANCE WATCH (2Q17 ENTRANCE AND EXITS OF ALL BDCS UNDER COVERAGE) PDF (CLICK HERE) EXCEL (CLICK HERE) BDCs Under Coverage as of 2Q17 1AINV 22TCRD 2ARCC 23TICC 3BKCC 24TSLX 4CPTA 25TCAP 5FDUS 26WHF 6FSC 27MRCC 7FSIC 28ABDC 8GARS 29GBDC 9GLAD 3TPVG 1GSBD 31PFLT 11HCAP 32FSFR 12HTGC 33SUNS 13HRZN 34CSWC 14KCAP 35OHAI 15MAIN 36SCM 16MCC 37CMFN 17NMFC 38OFS 18PNNT 39ACSF 19PSEC 4GAIN 2SLRC 41 CGBD 21TCPC Page 2

3 2Q17 Methodology Debtwire Middle Market s BDC Trends and Analysis report calculates average spreads and tenor, on a quarterly basis, for the leveraged loans issued by ~4 BDCs under coverage. BDCs are permanent capital vehicles that return 9% of their net operating income to shareholders in the form of a dividend in exchange for no corporate tax. There are estimated to be roughly 57 public BDCs, of which we track ~4 that have the most heavily trafficked market capitalization. The BDCs we track tend to define their loans differently, but we ve grouped them into three categories first lien loans, subordinated debt and unitranche and tracked both the average spread and tenor in all three groups. The subordinated debt basically encompasses second lien, mezzanine and unsecured debt. Each BDC either originated the loan, was the sole holder of the loan or participated in a larger loan issuance underwritten by a third party. The first two charts under each of the three categories encompass the average first lien coupon on all of the issuances and exits over the last eight quarters. The loans are grouped by applicable margin above LIBOR, cash interest, applicable margin above prime and applicable margin above the base rate. The second group of charts shows the average first lien issuance price and the average first lien exit price. The last two charts show total deals issued per quarter and total exits. Page 3

4 Price (%, QoQ) Price (%, QoQ) Interest Rate / Coupon (%, QoQ) Interest Rate / Coupon (%, QoQ) 2Q17 First Lien ISSUANCES AVERAGE FIRST LIEN COUPON EXITS AVERAGE FIRST LIEN RATE FOR EXITS 1.5% 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% 5.5% 5.% 4.5% 4.% 3.5% Avg L+ Avg cash int Avg P+ Avg B+ Avg cash int 8.2% 8.1% 7.5% 6.9% 6.8% Avg L+ 6.7% 6.4% Avg P+ 6.4% Avg B+ 1.5% 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% 5.5% 5.% 4.5% 4.% 3.5% Average First Lien Coupon For Exits Avg cash int Avg P+ Avg B+ Avg cash int 8.5% Avg L + 7.% 6.9% Avg P+ 6.8% 6.4% 5.9% Avg B+ 5.2% 4.3% AVERAGE FIRST LIEN ISSUANCE PRICE AVERAGE FIRST LIEN EXIT PRICE 99.% 11.% 98.% 97.9% Average First Lien Issuance Price 98.3% 99.% Average First Lien Exit Price 97.% 97.% 96.6% 96.% 95.% 95.% 95.2% 94.% 93.% 93.% 91.% 92.% 89.% Page 4

5 Total amount (USD 's) Total primary deals Total amount (USD 's) Total exits 2Q17 First Lien ISSUANCES FIRST LIEN PRIMARY DEALS & PRINCIPAL AMOUNT EXITS FIRST LIEN EXITS & AMOUNT EXITED 4,, Total amount (left axis) Total primary deals (right axis) 4 4,, Total amount exited (left axis ) Total exits (right axis) Total exits (right axis) 4 3,5, 35 3,5, ,, 3 3,, 3 2,5, 2,, 1,5, 1,, 5, 119 1,383,258 Total primary deals (right axis) Total amount 1 (left axis) 1,98,898 2,1,714 1,615,26 1,251,197 1,727, ,238,116 2,32, ,5, 2,, 1,5, 1,, 5, 161 1,66,597 Total amount exited (left axis), 3,7, , ,398, ,633,162 1,341,61 1,386,46 1,25, FIRST LIEN OVERVIEW: In 2Q17, the average first lien cash coupon increased 35 basis points QoQ to 8.1%. The increase comes after 4 straight quarters of tightening in the average cash coupon. Deal volume remains very heavy as of 2Q17. Nonetheless, there was a net outflow in first lien deals amongst the BDCs. Total entrances and exits were both up significantly YoY, illustrating the high level of activity in the current market. The total count of first lien issuances (212) decreased slightly QoQ, but the USD 2.3bn in total deal value was the highest over the last 8 quarter period. Total deal value continues to climb sequentially. The average price (fair value/principal) for first lien entrances increased QoQ to 98.3%, from 96.7% in 1Q17. The average price at exit increased by 68 basis points QoQ to 96.6%. Page 5

6 Price (%, QoQ) Price (%, QoQ) Interest Rate / Coupon (%, QoQ) Interest ate / coupon (%, QoQ) 2Q17 Subordinated Loans ISSUANCES AVERAGE SUBORDINATE COUPON EXITS AVERAGE SUBORDINATE COUPON FOR EXITS 12.% 11.5% Avg L+ Avg cash int Avg cash int 2.5% 18.5% Avg L+ Avg cash in t Avg PIK only 11.% 1.5% 1.% 9.5% 9.% 8.5% 1.7% 8.9% Avg L+ 9.8% 8.4% 16.5% 14.5% 12.5% 1.5% 8.5% 14.2% Avg PIK only 11.7% 1.9% Avg cash int 1.9% 8.8% Avg L+ 8.9% 8.% 6.5% AVERAGE SUBORDINATE ISSUANCE PRICE AVERAGE SUBORDINATE EXIT PRICE 1.2% 99.% 99.5% 97.% 98.5% 97.5% 96.5% 97.5% 95.% 93.% Average Subordinate Exit Price 95.5% 94.5% Average Subordinate Issuance Price 91.% 89.% 89.5% 9.7% 93.5% 87.% 92.5% 85.% Page 6

7 Total amount USD ('s) Total primary deals Total amount (USD 's) Total exits 2Q17 Subordinated Loans ISSUANCES SUBORDINATE PRIMARY DEALS & PRINCIPAL AMOUNT EXITS SUBORDINATE EXITS & AMOUNT EXITED 1,2, 1,, 8, 6, 4, 2, Total amount (left axis) 38 4 Total primary 36 deals (right axis) Total amount 28 (left axis) 641, , , ,767 Total primary deals (right axis) , , ,462 63, ,2, 1,, 8, 6, 4, 2, 39 58,93 Total amount exited (left axis) Total exits (right axis) 55 Total amount exited (left axis) 821, , , ,2,153 Total exits (right axis) 7 872, , , SUBORDINATED LIENS OVERVIEW: The quantity of subordinated loan entrances continue to increase QoQ, and significantly YoY, to 68 deals for USD 827m in total value in 2Q17. However, there was a net outflow, as the BDCs exited 76 positions for USD 968m in value. Average cash coupon and LIBOR spread continued its decline on both a QoQ and YoY basis, to 9.8% and 8.4%, respectively in 2Q17. The average issuance price increased significantly QoQ to 1.2%, after remaining relatively unchanged last quarter. On the contrary, the average price at exit decreased considerably QoQ to 9.7%, the lowest since 1Q16. Page 7

8 Price (%, QoQ) Price (%, QoQ) Price (%, QoQ) Interest Rate / Coupon (%, QoQ) 2Q17 Unitranche Loans ISSUANCES AVERAGE UNITRANCHE COUPON EXITS AVERAGE UNITRANCHE COUPON FOR EXITS 9.5% 9.% 9.1% 11.% 1.5% 1.8% 8.5% 8.% 1.% 9.5% 9.% 7.5% 8.5% 7.% 6.5% 6.% 5.5% Avg L+ 6.7% 8.% 7.5% 7.% 6.5% 6.% 7.4% Avg Cash Int. 5.% 5.5% 11.% AVERAGE UNITRANCHE ISSUANCE PRICE 12.% AVERAGE UNITRANCHE EXIT PRICE 1.% 99.% 98.% 97.% 97.3% Average Unitranche Issuance Price 97.3% 1.% 1.% 98.% 96.% 94.% 92.% Average Unitranche Exit Price 99.1% 96.% 9.% 95.% 88.% 94.% 86.% 93.% 84.% Page 8

9 Total amount (USD 's) Total primary deals Total amount exited Total exits 2Q17 Subordinated Loans ISSUANCES UNITRANCHE PRIMARY DEALS & PRINCIPAL AMOUNT EXITS UNITRANCHE EXITS & AMOUNT EXITED 14, Total amount (left axis) 33 Total primary deals (right axis) 35 12, Total amount exited (left axis) Total exits (right axis) , 1, 8, 6, 4, 2, Total amount (left axis) 27,5 1 Total primary deals (right axis) ,653 18,499 1,434 22, ,86 14, , , 8, 6, 4, 2, 6 7 Total amount exited (left axis) 41,698 57,144 35,5 4 Total exits (right axis) 11 45, ,2 5 17,53 1, UNITRANCHE LOANS OVERVIEW: After seeing minimal unitranche activity in 1Q17, we observed an uptick in transactions, amongst the BDCs, this quarter. We tracked 16 entrances, for a total principal value of USD 125.9m. There was also a surge in unitranche exits (15). Average price for issuances decreased QoQ to 97.3%, while the average price of exits increased QoQ to 99.1%. In 2Q17, the average LIBOR spread on unitranche entrances tightened 56 basis points QoQ to 6.7% Page 9

10 USD m 2Q17 Industry Breakdown INDUSTRY BREAKDOWN OF ENTRANCES AND EXITS Entrance Fair Value Exits Fair Value Entrance count Exits count Services (other) Healthcare Co mputer services Financial Services Co nsumer: Oth er Retail Media Techn ology Teleco mmun icatio ns Manufacturin g (other) - INDUSTRY BREAKDOWN OVERVIEW: The graph above illustrates the total volume and fair value of entrances and exits per industry (top 1 shown), as classified by Debtwire, for the BDCs under our coverage in 2Q17. In 2Q17, the services (other), healthcare and computer services industries had the highest amount of total fair value of entrances (USD 1.6bn total). We continue to see BDCs express a cautious approach to retail and energy. Retail sector inflows continued to decline QoQ to USD 15m, from USD 118m last quarter. In retail, we saw more than twice as much outflow (of total fair value) for exits when compared to entrances (USD 136m net outflow). Energy sector deal flow decreased to 13 entrances, from 19 last quarter. Page 1

11 Automotive Chemicals and materials Computer services Construction & Homebuilding Consumer Products Consumer: Other Defense Electronics Energy Financial services Healthcare Industrial products and services Liesure Manufacturing Media Minning Retail Services (other) Technology Telecommunication Transportation Utility 2Q17 Industry Analysis First Lien TOTAL PRINCIPAL AND DEAL COUNT OF FIRST LIEN ENTRANCES PER SECTOR, 2Q17 (USD 'S) 8, Sum of Principal Deal Count 6 7, , 42 5, , 73,53 3 3, 2, 1, Deal Count 5 6 Sum of Principal 38,16 39, , , ,516 5,537 43,633 2, ,226 77,96 526, ,755 59,16 14, , ,254 16, ,621 11,378 54,212 2, OVERVIEW: We continue to track the largest total deal inflow in the following sectors (as classified by Debtwire): healthcare, services and computer related technology. This quarter we saw less inflow from retail, energy and industrial products, when compared to 1Q17. Page 11

12 2Q17 Industry Analysis First Lien AVERAGE FIRST LIEN CASH COUPON PER SECTOR, 2Q17 Utility 8.3% Transportation 8.9% Telecommunication 9.3% Technology Services (other) 8.7% 8.8% Retail 6.9% Minning 1.8% Media 8.8% Manufacturing 6.5% Liesure 5.5% Industrial products and services 7.6% Healthcare 8.8% Financial services 9.7% Energy 8.4% Electronics 7.5% Defense 6.7% Consumer Products 7.1% Construction & Homebuilding 11.3% Computer services 8.8% Chemicals and materials 6.4% Automotive 6.1% 5.% 6.% 7.% 8.% 9.% 1.% 11.% 12.% OVERVIEW: The graph above illustrates the average first lien cash coupon per industry, originated by the BDCs in 2Q17. Construction & homebuilding loans had the highest cash interest rate at 11.3%, in 2Q17. The interest rate on mining and financial services loans were also relatively high this quarter. Page 12

13 2Q17 Industry Analysis First Lien AVERAGE FIRST LIEN PRICE AT ISSUANCE, PER SECTOR, 2Q17 Utility Transportation Telecommunication Technology Services (other) Retail Minning Media Manufacturing Liesure Industrial products and services Healthcare Financial services Energy Electronics Defense Consumer Products Construction & Homebuilding Computer services 11.2% 99.9% 11.1% 98.% 97.3% 98.4% 98.3% 99.% 99.7% 99.8% 1.3% 99.1% 98.2% 98.1% 11.3% 99.9% 99.4% 96.8% 98.9% Chemicals and materials 9.6% Automotive 98.7% 5.% 25.% 45.% 65.% 85.% 15.% 125.% OVERVIEW: In 2Q17, the chemicals and materials industry had the lowest average first lien price (fair value/principal) at 9.6%. All other sectors were reasonably close to 1%. Page 13

14 2Q17 Contacts Debtwire Middle Market Editorial Debtwire Middle Market Research Sales Jon Berke, Middle Market Editor, Debtwire North America , Suneet Chandvani, Head of Mid-Market Research , Jonathan Reed, Managing Director , Bill Weisbrod, Reporter , Alex Federbusch, Analyst , alex.federbusch@acuris.com Brian Fitzgerald, Head of Debtwire Sales Americas , brian.fitzgerald@acuris.com Rachel Butt, Energy Reporter , rachel.butt@acuris.com Amol Shinde, Middle Market Analyst , amol.shinde@acuris.com Tanvi Acharya, Reporter , tanvi.acharya@acuris.com Rahul Ramaswamy, Middle Market Analyst , Rahul.Ramaswamy@acuris.com Page 14

15 2Q17 Debtwire reports on corporate debt situations before credit ratings are changed. Offering unique insights, credit analysis, debt data, and analytics for distressed debt and leveraged finance markets. Follow corporate debt situations as they unfold Find mandate opportunities in stressed/ distressed/restructuring situations, ahead of the market Subscribers choose Debtwire for speed and depth of coverage they can t get anywhere else. Our reporters talk to an impressive range of contacts every day to bring you valuable early insight into fast evolving situations. To complement your newsfeed, Debtwire s credit analysis and research teams provide deep technical details and angles that help you understand situations more clearly. Get real-time news on market-moving events sent to your mobile or Get the full story on restructurings and the players involved Understand how regulatory developments are affecting asset-backed securities Capture early stage primary opportunities and stay on top of the leveraged market EMEA 1 Queen Street Place London EC4R 1BE United Kingdom sales@acuris.com Americas 33 Hudson St. 4th Floor New York, NY 113 USA sales.us@acuris.com Asia Suite Grand Millennium Plaza 181 Queen s Road, Central Hong Kong sales.asia@acuris.com Disclaimer We have obtained the information provided in this report in good faith from sources that we consider to be reliable, but we do not independently verify the information. The information is not intended to provide tax, legal or investment advice. We shall not be liable for any mistakes, errors, inaccuracies or omissions in, or incompleteness of, any information contained in this report. All such liability is excluded to the fullest extent permitted by law. Data has been derived from company reports, press releases, presentations and Debtwire intelligence.