Warner Chilcott (LSE:WCRX)
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SemGroup LP, Skype Technologies and Warner Chilcott PLC (WCRX) are among companies selling billions of dollars of high-risk loans as the market shows tentative signs of recovery after lying dormant for the last two years.

BNP Paribas (BNP) and Bank Of America Merrill Lynch launched syndication at the end of last week of a $500 million loan for SemGroup backing the oil transporter's bankruptcy exit. And investors are expecting to hear more about Warner Chilcott's $4.15 billion loan financing supporting its purchase of Procter & Gamble's (PG) prescription drug business.

Meanwhile, lead managers JPMorgan (JPM), Barclays Capital and RBC Capital Markets are preparing to sell a $600 million loan to back the $2.75 billion purchase of a majority stake in EBay Inc.'s (EBAY) Skype unit by an investor group led by private equity firm Silver Lake, according to a person familiar with the situation. And last week, investors bought $500 million in loans for chemical manufacturer Huntsman Corp. from Credit Suisse Group AG and Deutsche Bank, suggesting that the primary market for leveraged loans is finally thawing.

"I have gotten calls from two of the bigger banks saying they're gauging their clients on appetite for loans," said one portfolio manager with $3 billion in loans and high yield under management. "I'm optimistic that we'll see a little bit." SemGroup Treasurer Alisa Perkins declined to comment. Warner Chilcott and Silver Lake weren't immediately available to comment.

Leveraged loans are those made to companies with credit ratings below investment grade. The market for this type of debt peaked during the historic buyout boom, thanks to collateralized loan obligations - investment vehicles known on as CLOs - and hedge funds that bought the debt from banks. It caved in after the subprime mortgage market blew up and investors sought less risky assets.

As a result, sales of new leveraged loans plunged to $153 billion last year, compared with $535 billion in 2007 and $480 billion in 2006, according to data from Standard & Poor's LCD unit.

But an impressive rise in the prices of leveraged loans in the secondary market this year is encouraging borrowers and investors back to the table. The S&P/LSTA 100 index has risen 43% this year. That's a quite a comeback after the index dropped a record 28% in 2008.

"Pricing in the secondary market has returned to a point where new deals are viable," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott.

Indeed, year-to-date, companies have sold $38 billion of new leveraged loans, LCD figures show. Of the $38 billion, $8.36 billion is from debtor-in-possession, or DIP, financings, according to LCD.

Although leveraged loan prices have risen 21.7% to 83.7 cents on the dollar this year, issuance of new loans still has a long way to go if it is to get near the level of previous years.

"Conditions are not as easy in the lending markets as they were a couple of years ago...it's very much on a name by name basis and lenders and investors are demanding much stricter protections and tougher guarantees," LeBas said.

-By Kate Haywood and Andrew Edwards, Dow Jones Newswires; 212-416-2218; kate.haywood@dowjones.com

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