T-Mobile, Delta deals signal an opening in leveraged loan sales

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The U.S. leveraged loan market is springing back to life with new deals for T-Mobile US Inc. and Delta Air Lines on deck for investors willing to take on risk.

T-Mobile kicked-off sales Monday for a $4 billion leveraged loan to back its merger with Sprint Corp. It is the biggest loan to launch since the Covid-19 pandemic roiled financial markets, and is the latest sign that things are edging toward normalcy.

Delta has a $1.5 billion term loan that drew such outsized interest from investors that it was able to lower the spread by 25 basis points to 475 basis points over Libor. The airline also upsized its high-yield offering by $2 billion bringing the total to $5 billion in bonds and loans.

Those deals come as the backdrop for loans has improved. The Federal Reserve’s foray into junk-debt lifted sentiment, helping restart activity in the high-yield bond market. Collateralized loan obligations, the biggest buyers of loans, have also re-emerged from a deep freeze.

However, despite all that, the market has yet to fully recover. While the S&P/LSTA leveraged loan index up about 10 points since falling to its lowest level in about a decade. Last week saw some cooling in secondary prices due to “continuous rating downgrades, rising default rates and oil market volatility,” Deutsche Bank AG said in a report Monday. That weakness underscores the fragility of the recent opening seen for new deals. And the positive signs of T-Mobile and Delta are tempered by the investment-grade ratings they received for their loans. Almost all leveraged loans are junk rated.

T-Mobile’s long-awaited deal follows Delta and mobile game developer Applovin’s $250 million term loan that are already in syndication. All three are among the first to begin the loan sales process offering single-digit yields since activity returned.

Based on initial discussions with investors, T-Mobile’s loan is being offered with an all-in yield of less than 4%, according to Bloomberg calculations.

When the market reopened early in April the first spat of deals had yields typically seen for distressed companies. Billionaire Tilman Fertitta paid a yield of at least 14% to raise a $300 million loan for his casinos earlier this month. Gaming manufacturer PlayAGS Inc.’s $95 million term loan needed 15% yields to price last week. Those deals were seen as desperate attempts to shore up balance sheets as companies try to navigate the pandemic.

That stands in contrast to the loans for T-Mobile and Applovin, which are being raised to expand their businesses -- and they aren’t alone. Culligan, a water-filtration products provider, recently priced a $350 million incremental term loan to buy AquaVenture, though that merger has already closed and the loan was funded by banks.

Bloomberg News