US LevFin Wrap — Crosby dangles hooks, Citrix gives early looks, MotorCity and Medline confront inflation

Will Caiger-Smith

26 August 2022•4 min read

It’s that time of year. Inboxes full of out-of-office replies, “on vacay” texts after missed phone calls, the occasional foreign dial tone when a US landline is diverted to a mobile number whose owner is working from the beach.

Primary goes quiet, liquidity dries up, life slows down just a little.

Of course, it’s hard to relax if you’re a central banker fighting inflation, or an investor hit by the market volatility after Jay Powell’s hawkish speech at Jackson Hole last Friday. There’s plenty of commentary out there already, so we’ll leave ours at that.

It’s also difficult to have a chill summer if your bank is sitting on a huge pile of underwritten LBO debt, so bankers are still hard at work drumming up interest for Citrix’s giant syndication, which is expected to launch after Labor Day.

There’s been so much back-and-forth around the syndication of this debt and how it will impact the underwriters that it’s easy to forget it comes with a company attached. We last dug into Citrix’s business outlook in March, so we’ve done a refresh.

Tangibles and intangibles

Based on credit metrics seen by 9fin sources during early looks for the deal, Citrix’s pro forma capital structure would lever the company (which is merging with TIBCO but getting rid of Wrike) about 5.2x through first lien debt and 7.1x total.

Those figures build in $491m of expected cost savings under the company’s new sponsors, Vista and Elliott. On that basis, some buysiders are forecasting true leverage to be higher than they are comfortable with for a legacy software business.

Some sources also suggest that the slow CLO market will suppress demand for this long-awaited debt syndication. Others, however, believe buysiders have been so strongly conditioned by years of ‘buy the dip’ that fundamentals might not matter.

You can read our full story on Citrix here. If you have thoughts to share on this hotly anticipated deal or our coverage of it (or any of our content, for that matter) you can always find contact details for reporters next to their byline.

If software is too abstract for you, how about something more tangible? The Crosby Group, maker of industrial-strength hooks and hoisting systems, is giving early looks for new debt to fund its acquisition of KITO Corporation — read more here.

Earnings and learnings

Earnings season rolls on, with many privately owned companies just getting around to reporting their second quarter numbers.

A consensus is emerging that most levered companies are holding up OK against the headwinds of inflation, supply chain disruption and cooling demand. Medline and MotorCity Casino are two recent examples.

Medline, which posted its numbers last week, managed to grow sales despite a tail-off in pandemic-related demand. Its bottom line fell due to cost inflation, but sources speaking with 9fin classified the report as a beat.

MotorCity, meanwhile, told investors during a Thursday conference call that it would hold back on growth capex spending and dividend payments while it waits to see if sales recover amid competition from a neighboring casino operated by MGM — but its margins and free cash flow are still healthy.

MGM is spending heavily on promotions to get customers through the door, which investors familiar with MotorCity said was unlikely to be sustainable. Aside from this competition angle, MotorCity is also wary of the potential for a recession, hence the cautious tone on capex and dividends.

There have been some notable exceptions to the relatively benign earnings picture, however. Envision Healthcare, for example, had a tough second quarter thanks to higher labor costs and a dispute with UnitedHealth.

In the same sector, Air Methods is facing a shock to its business model from surprise billing rules and wage pressures — here’s our story from a couple of Fridays ago on its disappointing 2Q earnings report.

And if you want more on healthcare, check out our long read on the divergence between rural and urban hospital earnings.