SOFR leveraged loans rise as Morgan Stanley and BofA plunge

(Bloomberg) – Sales of leveraged loans in the United States tied to the overnight secured financing rate accelerate after JPMorgan Chase & Co. established a master plan for borrowers earlier this month – this.

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Gateway Casinos & Entertainment Ltd on Friday sold a $ 1.07 billion loan with an 800 basis point – or 8% – spread over SOFR, in addition to a credit spread adjustment, according to reports. people who know the subject. It also sold a C $ 218.6 million loan at an 800 basis point deviation from the benchmark of the Canadian market, said people who asked not to be identified as details are private.

The loan is attractive for reasons as it is led by Morgan Stanley. JPMorgan brought the first three transactions related to the new SOFR benchmark, helping to set standards on how to use it in future transactions. Since companies can no longer issue new financial products with Libor from 2022, further transactions are welcome.

Federal Reserve Governor Randal Quarles warned banks there would be no reason for them to use Libor after 2021 for new deals and the central bank will use a “full set of surveillance tools “to force the transition to Libor. Libor will cease for legacy agreements in mid-2023.

Morgan Stanley has also adopted a pricing strategy similar to that of JPMorgan. He set a credit spread adjustment of 10 basis points for the one-month rate – a rate hike measure intended to compensate for the fact that SOFR is typically lower than Libor – and 15 basis points for the rate. at three months, say the people.

Read more: JPMorgan secures first SOFR leveraged loan under watershed deal

Gateway Casinos will use the proceeds of the transaction to refinance existing debt. He has the option of borrowing more instead of paying interest, people said.

Bank of America Corp., meanwhile, on Friday set final terms for a $ 610 million loan to investment firm Heubach Corp. This deal is also tied to SOFR, offering a 500 basis point spread against the new benchmark, with the same credit spread adjustments for one and three months.

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