Leveraged loans for acquisitions and dividends are outpacing the amount raised to repay debt as companies take advantage of a rally to triple issuance.
The S&P/LSTA US Leveraged Loan 100 Index gained 8.37 percent this year, extending the record returns of 52.2 percent in 2009. High-risk, high-yield loan sales rose to $229.3 billion from $76.6 billion in all of last year, with companies using 53 percent for M&As and payouts, up from 25 percent last year, according to Standard & Poor’s Leveraged Commentary and Data.
Walter Energy Inc., the steelmaking coal producer that’s raising $2.73 billion in loans for a takeover, and Novelis Inc., which is planning a $1.7 billion dividend, are among companies shifting their focus to shareholder distributions and growth from refinancings as economists and investors say the U.S. economy will expand more than previous forecasts. The Federal Reserve’s additional monetary easing and President Barack Obama’s tax-cut extensions come as default rates drop and borrowers chip away at a $324.5 billion maturity wall.
“Corporate balance sheets are healing and we’re starting to see M&A and buybacks pick up again,” said Mark Okada, co- founder and chief investment officer of Highland Capital Management LP with $18 billion in loan investments. “There really was a resurgence in activity and recovery across U.S. capital markets, and certainly there is a lot more to be worried about, but I don’t hear a whole lot of people talking about a double-dip anymore.”
Obama’s agreement with Republican lawmakers to prolong income-tax cuts enacted in 2001 and 2003 by the George W. Bush administration may help raise gross domestic product by as much as half a percentage point to 3.1 percent, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. Tom Porcelli, a senior economist at Royal Bank of Canada, is raising his growth forecast for 2011 by one point, also to 3.1 percent.
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