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Comments (7)

May 18, 2011 - 5:04pm
s2tn6at:
- Easier access to capital
- Typically lower interest payments

easier? how come? HY can be accessed by more investors.
And lev loans are very similar in pricing to senior secured HY. some structures today are done with senior secured bonds and that has nothing to do with lack of loans supply.

May 18, 2011 - 6:12pm

Which side of the coin would you like the advantages from?

For the investor:
- Senior status in capital structure
- Typically shorter term
- Floating interest rate

For the sponsor:
- Easier access meaning that there is less regulatory framework (don't have to register debt with the SEC, etc.)
- ~18 weeks from origination to disbursement of capital
- You know exactly how much you'll be getting (price talk might not equal the price when the issue hits the market for HY)

May 18, 2011 - 6:20pm
s2tn6at:
You know exactly how much you'll be getting (price talk might not equal the price when the issue hits the market for HY)

I might be misunderstanding you, but for a best efforts transaction you don't necessarily know what you're going to be able to get. For a committed deal, you know what you're going to get. This applies to loans and bonds.

May 18, 2011 - 6:17pm

The above posts are somewhat correct but miss a lot of the main points.

Reasons investors like loans (as opposed to pari bonds):
Floating rate (can be replicated in HY but off-the-run)
Maintenance Covenants

Reasons sponsors like loans:
Prepayability helps to build equity value (bonds typically carry call protection for a number of years and even then can only be broken at a premium, in most cases)
Loans can be easily amended

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May 18, 2011 - 8:29pm

I was referring particularly to why loans are important for PE investors when doing acquisitions. And why is PE activity down when the lev loan market is down? Can't they replace that with HY (assuming there is a HY market)

The only good point that I can think of is (like the above poster said), the fact loans are amortized and hence increase equity value. Deleveraging is a value lever in itself.

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