Companies Hustle to Tap Into Boom in Leveraged Loans

More and more companies are reportedly taking advantage of a growing leveraged loan market.

As Bloomberg News reported Thursday (Feb. 1), these businesses are using new first-lien debt to help to save on paying down expensive loans that will be due in the coming years.

“It’s a sign of things that were unthinkable 12 months ago, but where people are happy to put pen to paper in 2024,” Andrzej Skiba, head of BlueBay U.S. fixed income at RBC Global Asset Management, told Bloomberg.

“Any creative ways to address the maturity wall in 2025 will be considered. When the music is playing, people get creative.”

The report notes that although companies typically prefer not to take on more expensive second-lien debt, there are times when they have no other recourse. For example, investors may not want to end as much first-lien debt as a company needs to pay for an acquisition.

Now, Bloomberg says, companies that once had few options see more opportunities, with leverage loan demand rising as interest from collateralized loan obligation grows.

Meanwhile, PYMNTS recently explored the ongoing adoption of working capital solutions among growth corporates, or middle-market firms.

A Visa-sponsored study conducted by PYMNTS Intelligence found that middle-market firms in the fleet sector employed a variety of working capital solutions depending on their location.

For example, European growth corporates chiefly rely on working capital loans (40%) and overdrafts (23%) to fund growth initiatives and handle emergencies, while companies in Latin America and the Caribbean (LAC) were more inclined to pay for their expansion through overdrafts (25%), working capital loans (28%) and virtual credit cards (13%).

“Letters of credit (LCs) or bank guarantees, once deemed indispensable for transactions but now considered an outdated business practice, remain on the list of select working capital solutions that companies intend to use this year,” PYMNTS wrote.

Companies in the North American market are the most inclined to rely on this method of financing, with over 1 in 10 planning to do so this year. Following closely are firms in Latin America and the Caribbean, along with Central Europe, the Middle East and Africa.