Riskier loan issuers push back maturity wall via amend-and-extend deals

The $21.2 billion of amend-and-extend leveraged loan dealmaking in December was the fourth consecutive month of greater than $20 billion, capping a record year. The total for 2024 was $226 billion, easily eclipsing the previous record set in 2023 of $176 billion.

For reference, amend-and-extend transactions allow issuers to push out loan maturities without refinancing into a new credit, which would require marking the entire loan to market and could entail higher spreads, a new OID, etc. In return, lenders typically receive a higher applicable margin on their extended loans and may receive additional compensation, including extension or amendment fees.

The record pace of A&E deals is particularly noteworthy in the current climate, as the average yield to maturity for refinancing institutional term loans via syndication in 2023 was 9.6%, a 23-year high. That average was down slightly, at 8.6% in 2024, still up significantly from historical averages.

December’s amend-and-extend activity came courtesy of 25 transactions, with institutional deals dominating volumes at $12.1 billion versus the $9.1 billion from the pro rata side. This was driven by a massive repricing wave that is washing over the institutional loan market, with almost 100 repricing transactions closing last month alone — and many of those repricing transactions come alongside extensions. The prevalence of institutional amend-and-extend transactions was a departure from the past few years, when the pro rata market supplied the majority of A-and-E activity.

Sponsored amend-and-extend transactions ran just ahead of non-sponsored activity in 2023, but non-sponsored deals edged to the front in 2024, with a 53% share.

Notable institutional transactions in December included the extension of Jane Street Group’s $3.204 billion term loan B, Morton’s extended $1.534 billion term loan B, Nord Anglia Education’s extended and repriced $1.992 billion term loan B, Allspring’s repriced and extended $1.073 billion term loan B, and Perforce Software’s extended $1.082 billion first-lien term loan. On the pro rata side, notable transactions included Gaming and Leisure’s upsized $2.09 billion revolver and Charles River Laboratories’ downsized $2 billion revolver.

Note that pro rata debt typically entails amortizing TLAs and/or revolving credit facilities and is traditionally syndicated to finance companies and banks. Institutional debt consists of term loans structured specifically for institutional investors, including CLOs.

While there is heightened urgency to address near-term maturities, LCD data show that the companies being given breathing room are, by and large, not immediate default candidates. Roughly 84% of the amendments completed from this analysis in 2024 were rated B-minus or higher at the issuer level, which is on par with 2023 and above the 76% share in 2022.

Meanwhile, sponsored and non-sponsored companies with pro rata loans mostly chipped away at 2026 maturities through the end of 2024 — extending $52.7 billion of debt due that year — along with $38.2 billion due in 2027 and $19.7 billion due in 2025. On the institutional side, activity has been focused on 2027 and 2028 maturities, with borrowers extending $32 billion and $40.6 billion coming due in those years, respectively, although $22.7 billion of institutional loans coming due in 2026 were also extended.

For context, the amount outstanding in the leveraged loan market as referenced by the Morningstar LSTA US Leveraged Loan Index was $1.4 trillion at the end of 2024. Loan volume maturing through the end of 2025 has narrowed to $15.8 billion at the end of 2024, from $81.3 billion at the end of 2023. The amount of loans coming due in 2028 and beyond, however, grew by $346.5 billion from the end of 2023 through the end of 2024.

Meanwhile, LCD reported on four covenant-relief transactions in December, which is less than the six recorded in November — the largest number of covenant-relief transactions since June 2023. That was up from the one transaction reported in October and the three transactions reported in September. However, that only brought the total number of covenant-relief transactions in 2024 to 38, which is still less than the 42 and 41 reported in 2022 and 2023, respectively.

Of course, one of the fundamental differences in the covenant-relief landscape today is that the overwhelming majority of current covenant-relief deals are pro rata. A decade ago, covenant-relief activity tilted toward institutional issuers.

In 2010, the volume of institutional and pro rata covenant-relief activity was about $70 billion and $34 billion, respectively. Fast forward to 2020, and institutional deals accounted for just $19.7 billion of the $159.6 billion in covenant-relief volume, according to LCD. In 2023, pro rata accounted for $26.8 billion of the $27.6 billion of covenant-relief volume.

Covenant-relief volume totaled $1 billion in December, all of it pro rata. The annual tally, meanwhile, only reached $20.52 billion, with $20.44 billion of that total being pro rata. This annual total is also less than the $30 billion and $27.6 billion totals reported in 2022 and 2023, respectively.

Note that because the vast majority of the outstanding US leveraged loans are covenant-lite (and pro rata deals are required to have covenants), it stands to reason that most of today’s covenant-relief activity is for pro rata deals.

Lastly, the covenant-lite share of the Morningstar LSTA US Leveraged Loan Index remained at an all-time high of 91%, which is up from 89% at the end of 2023.