Actionable Ideas for Companies and Sponsors

Non-Fungible Incremental Add-ons

The widening out of credit spreads in the leveraged loan market has reduced the ability for companies to easily tack on tax-fungible leveraged loans due to the market clearing price dropping below the required issue price threshold for tax fungibility. When companies need financing for acquisitions and can’t wait for their loan price to rebound, instead of potentially repricing the entire existing tranche, companies have recently issued smaller non-fungible tranches at wider pricing than their existing loans. Lenders generally have a minimum tranche size for eligible investments, but recently have begun to deploy capital into these non-fungible tranches. Recently Jefferies arranged a non-fungible $125 million Term Loan for PetVet at L+325 issued at 98.5, compared to their existing L+275 loan. Also, Jefferies arranged a non-fungible $60 million Term Loan for Berlin Packaging with the same spread as their existing L+300 Loan, but with a discounted price of 96.0, compared to the fungible level of 98.55.