NEW YORK (LPC) – A refinancing transaction for driveline system maker American Axle & Manufacturing is expected to be shelved as a softening in the equity and corporate debt markets is making investors wary of buying into new leveraged loans that could lose value in the secondary market, sources said.
JP Morgan is leading the deal, which has been removed from its new-issue calendar, according to two sources. Commitments from lenders were due May 24.
US stock markets sank more than 1% in value Tuesday on downbeat guidance on trading from JP Morgan and worries over Italy, putting the S&P 500 and Dow Jones Industrial Average on track for their biggest one-day drops in a month, according to Reuters.
Leveraged loans, which usually move in line with equities, were trading down Tuesday, in general, between 1/8-1/4 of a point, according to a trader.
“Names that recently broke in the secondary are trading down if [the deal is] viewed as an aggressive repricing of a not-so-well known name. Higher-rated corporates are trading at or above their OIDs (original issue discounts),” the trader said.
American Axle said earlier this month it was looking to lower pricing on its US$1.5bn term loan due in April 2024. The company circulated guidance of 200bp over Libor with a 0% Libor floor and an issue price in the 99.875-100 range.
“There’s a lot of Libor plus 175bp paper that is trading poorly. BB-rated names or lower are trying to go tight and are being bid below their OIDs,” a buyside source said.
American Axle is rated B1/BB-. The loan is rated Ba2/BB.
“I think the feeling is that the market should straighten out, but in the near term it’s going to be a little bit harder for repricings,” a second buyside source said.
American Axle lined up the loan at a size of US$1.55bn in March 2017 to support its acquisition of Metaldyne Performance Group. The loan priced at 225bp over Libor with a 0.75% floor.
“The market is pulling back. People are going to start saying ‘no’ soon,” the trader said.
JP Morgan declined to comment.
Reporting by Michelle Sierra; Additional reporting by Jonathan Schwarzberg; Editing by Lynn Adler and Jon Methven