Credit rally entices borrowers to pick BSL over private credit

Sasha Padbidri

15 November 2024•3 min read

The US primary loan market is seeing a swell of activity in the wake of President-elect Donald Trump’s decisive win last week and a growing number of borrowers are seizing this opportunity to refinance their existing private credit facilities.

That’s not to say private credit has lost its shine, but a trio of companies, including fund administration platform Gen II Fund Services, educational software vendor Ellucian and manufacturer Signia Aerospace, are taking advantage of rallying credit spreads and the interest rate cut by the Federal Reserve this month to lock in cheaper financing from the broadly syndicated market.

“Sponsors are increasingly running dual-track processes with BSL and private credit financing sources competing for deals,” said Andrew Young, head of the Americas banking practice at Clifford Chance. “At the same time, refinancing into the BSL market now is more favorable given the decreasing interest rate environment, including the likelihood of the Fed to cut interest rates again in December.”

General Atlantic and Hg Capital-backed Gen II Fund Services is refinancing its existing private credit facility via UBS with a $675m first lien TLB; the loan is offered at SOFR+325bps (0% floor) with a 99.5 OID. Commitments are due 19 November at 5pm ET.

Bank of America, RBC and Wells Fargo meanwhile launched a recapitalization bond and loan package for Vista and Blackstone-backed Ellucian to pay a $475m distribution to shareholders (check out this story for more details) and take down private second lien debt that was at least partly held by KKR.

The recap deal also comprises a $585m second lien term loan due 2032 that priced at SOFR+475bps with a 99.75 OID, versus IPTs of SOFR+500bps and a 99.5 OID — that’s more than 300bps tighter than the pricing of its existing $339m 2L TL due 2028, which was priced at a spread of 800bps over SOFR, according to 9fin’s BDC Holdings tool.

“It’s all about cost. How can private credit lenders compete at this point when the BSL market is offering spreads in the 400bps-range?” said a buysider following the deals.

There’s more headed our way — 9fin reported last week that Jefferies is pre-marketing a $675m loan for marketing company Neptune Retail Solutions to take out an existing Cerberus-led private facility.

Size matters

Sources following these transactions indicate that borrowers and sponsors with bigger deals are also more likely to pick the BSL route given the lure of a broader investor base.

Arcline Investment Management’s portfolio company Signia is looking to raise a $1.8bn TLB and a $150m delayed-draw term loan that will support an acquisition and refinance existing debt including Signia’s privately placed loan. The JP Morgan-led loan is offered at SOFR+325bps-350bps (0.5% floor) and a 99.5 OID. Commitments are due 21 November at 5pm ET.

“For a bigger deal like Signia’s, choosing BSL may mean more investors can participate and therefore more liquidity,” the buysider said.

Bank of America, Wells Fargo, UBS, JP Morgan, Gen II Fund Services and General Atlantic declined to comment. Spokespeople for the other firms did not return a request for comment.

PS — check out the latest episode of our Cloud 9fin podcast, in which the team explore the challenge Lycra’s stakeholders face in navigating the company’s balance sheet, and why the company is considering a private credit option.