Banks have gone on the offensive in the corporate lending market, where they had lost market share in recent years. Leveraging lower interest rates, they are taking back deals from private credit funds.
So far this year, nearly $30 billion in private loans have been refinanced into syndicated loans in more than 70 transactions, according to a Bank of America (BofA) study. Borrowers who wanted to reduce their interest burden switched to this service.
Banks and private lenders are in fierce competition to finance a small number of mergers and acquisitions (M&A) deals, but syndicated loans are making a comeback amid expectations of lower interest rates.
“The syndicated loan market is booming and gaining market share,” said Andrew Bellis, head of private debt at Partners Group. “The market is wide open and banks are actively underwriting it.” said.
In recent weeks, three companies, K2 Insurance Services, Serco International and Allegeus Technologies, have refinanced their loans into syndicated loans to reduce costs. Serko’s new leveraged loans could reduce the company’s interest margin by about 2.25 percentage points, Bloomberg reports.
For borrowers who had taken out high-interest private loans, the savings would be significant. In the case of Allegeus, a subsidiary of Vista Equity Partners, the interest rate on the private loan was 8.25 points above the secured overnight funding rate (SOFR), but the terms of the syndicated loan refinanced last month were 5-5.25 points above the benchmark rate. It was issued at a discount of 98 cents. According to Bloomberg’s calculations, the company will save $75 million in interest over the five-year term of the loan.
“There are limits to the spreads that middle-market private lenders can participate in,” said Clay Montgomery, vice president of Moody’s Ratings’ Private Credit Group. He explained that it would be difficult to achieve the ROE target.
Private lenders “are not losing a lot of deals in their core middle market, but they will feel more pressure on larger deals because the syndication market is their real competition.” He also said.
Original title:Banks Reclaim $30 Billion of Debt Deals From Private Credit(excerpt)
