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# American peoples Heavily Levered Companies Layer Loans Over Loans | LiveInsure

Aug 31, 2021

 Incremental  lending has grown so much in part because investors agreed to allow it  in the first place. For much of the year, money managers were so eager  to make loans that they would consent to just about any terms, including  allowing companies to add on more loans. The growth of incremental debt  underscores how permissive lending markets have become, and why so many  money managers and rulemakers are watching corporate borrowings warily  now.  “Lenders  have been providing what feels like unlimited capacity to borrowers to  incur additional loans,” said Vince Pisano, a senior analyst at Xtract  Research. “A lot of the extra debt is paid out to private equity owners  as dividends, so at some point you should be investing in those firms  and not the loans.”  

Debt Buffer

With  that refinancing, a company ends up with more debt that’s first in  line, reducing recoveries for everyone at the level known as the first  lien, and fewer lenders to absorb losses when things go wrong. The  crowded first lien is a problem for lenders who have agreed to receive  less interest in exchange for taking what they thought would be less  risk, said George Goudelias, of Seix Investment Advisors. 

Dividends Increase

Applied Systems is using a $210 million incremental loan to  pay its private equity owners $200 million, a third dividend. Hellman  & Friedman bought the Illinois-based firm in 2014 in a deal  including an investment from JMI Equity. Some  incremental debt deals have even sought to add a piece of debt that  matures ahead of the term loan, effectively subordinating borrowings  that would otherwise rank equally in the repayment order, according to  Chris Mawn, head of the corporate loan business at investment manager  CarVal Investors.