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Owen Sanderson

Syndicated leveraged loan markets seem to have decisively turned the tables on private credit, as private credit-to-syndicated refi deals take off, and the first new money LBO in Europe this year opts for a distributed financing.

There’s a clearly a long way to go for buyouts to open back up again after a disastrous 2023, when M&A financing accounted for only 8.6% of overall issuance on the back of valuation dislocation between potential buyers and sellers of companies.

But the price dominance of syndicated markets over private credit today should bring some new credits into the leveraged finance universe. According to a Bank of America report looking at the global picture, year-to-date close to $10bn has been refinanced out of direct lending (DL) into the broadly syndicated loan (BSL) space, with issuers saving 200bps-300bps in margins on average. 

As the direct lending spread premium over BSL recently hit 250bps, the highest level in a decade, this has incentivised issuers to cut interest costs by rotating into syndicated markets, BofA noted. 

The bank said to expect this private-to-public rotation to remain in full swing until the DL premium decreases to the bank’s forecast of 150bps -200bps levels. It estimates a global opportunity set of more than $100bn which could make the shift from private credit to syndicated.

Read here for our latest report on the PC-to-syndicated market trend.

Fight Scene III study of two figures, Eoin llewellyn

Meanwhile, investors are counting the costs of January’s extraordinary repricing wave. January 2024 saw the largest flow of repricing deals since March 2017, Barclays wrote in a research note, with the average bid prices for single-B and BB loans being now 98.4 and 99.5 respectively. 

According to the investment bank, the average single-B nominal spread today is 408bps and 325bps for BBs, coinciding with the biggest tightening in nominal spreads seen since 2017. 

Barclays said that 56% of the European institutional leveraged loan market is trading between 98 and 100, not far off the highest levels on record.

Despite the size of the repricing wave, it has not affected CLOs as much as might be expected, with volumes still too low to have a material knock-on impact in terms of pressuring weighted average spread (WAS) tests, Barclays wrote. 

The research showed that a number of CLOs in the current market have a decent cushion of 30bps or more of reported WAS, with 18 deals in breach of the WAS test, but all out of their reinvestment periods. 

However, Barclays also wrote that 70 deals passed the WAS test with less than a 10bps cushion, making them more vulnerable to a breach. Of these 70 deals, 46 are out of their reinvestment period and so more likely to breach.

The WAS averaged across all active CLOs was 401bps as of January 2024, an increase from 380bps in January 2023, going back to levels last seen in 2017 and earlier, it said. 

But will CLOs be more harmed in the next repricing window? If every loan reprices, nominal spreads fall 43bps, the study showed, and if 50% reprice, the impact is expected to be 22bps — in 2017 (the biggest repricing year in the last decade), nearly 80% of the market repriced, Barclays noted.

In primary markets, Sweden’s Eleda offered a glimpse of hope to loan investors, marketing €1bn of 2031 TLBs to back Bain Capital's takeover — the first full-scale new money LBO to come to market in Europe after Synlab AG last year.

The offer is split between SEK8.5bn equivalent TLB and SEK1.735bn equiv. delayed draw TLB (fungible with main TLB once drawn) guided at E+400-425bps with OID of 99.0. 

TenCate Grass’s deal funds Leonard Green’s acquisition of the artificial grass maker, and was once talked about as a private credit deal — despite its existing syndicated capital structure. The company made its dollar debut this time around, and wrapped up syndication of the $835m and €350m facilities this week, pricing these at 400bps over SOFR/Euribor at 99.5.

New refinancing and repricing launches this week include software provider Planet, looking to repay existing term debt and RCF with a 7-year €910m TLB. The loan offers an unusually high coupon guided at E+500/525bps with a significant discount on the price — 97 OID.

Advent stablemate Zentiva, a pharmaceutical generics firm, launched a repricing for its €1.83bn TLB, looking to cut margins from the 500bps level struck in 2023’s A&E deal to a more palatable 425-450bps margin with talk of 99.75-100, while Safic-Alcan and Devoteam are due to wrap up their own repricings next week.

German energy services and smart metering provider Techem launched a €1.5bn A&E TLB to push the maturity on the existing €1.145bn TLB to July 2029, and redeem part of the €1.145bn 2025 2% SSN. 

The A&E has been guided at E+375bps and OID of 99.5-par, from the current E+237.5bps margin.

Existing sponsor Partners Group has been exploring a sale of the company, which has been talked at enterprise values of around €8bn. Banks and private credit lenders were offering around €3bn of debt to fund a potential buyout, though it’s possible that, as public equity markets recover, Partners explores a listing instead of a secondary sale. Regardless of the exit route, pushing out the debt maturities avoids time pressure; the 2025s would otherwise go current this summer.

The Chinese sponsors of Amer Sports made the equity market debut for the Finnish sports brands maker before launching a loan and bond refinancing. The NYSE listing was disappointing, with a debut at $13 per share, from a target range of $16-$18, but debt investors proved relatively enthusiastic.

The euro TLB was increased from €600m to €700m at 350bps and par, perhaps reflecting Amer’s longer history in the euro-denominated loan market, while the dollar loan was cut from $600m to $500m at SOFR+325bps and 99.5. The dollar bond, however, was upsized from $600m to $800m.

Cognita wrapped up its repricing and add-on last week, but another education roll-up hit the market soon after, with K-12 school operator Inspired Education launching a refinancing deal on Friday, bringing a €1.095bn 2031 TLB that includes €300m of new money to fund its acquisition pipeline. The deal is being marketed at E+400bps and 99.5 OID.

Also launching this week was Getty Images, a stock photo site, offering $1.38bn-equivalent split between $980m 2031 TLB at S+375bps 99-99.5 OID and a euro $400m-equivalent 2031 TLB at E+400bps and 99-99.5 OID.

HY issuance has been quieter than loans this week, as earnings and go-stale approaches, but investors are allocating more cash to the asset class, with research from Barclays showing the continuation of strong inflows into PE HY funds, according to the investment bank. 

In PE HY, a 13th week of inflows over the last 14 weeks was equally split across ETFs and mutual funds, whereas €-IG inflows were driven by long-duration funds, which more than offset small outflows from short-duration funds.

Ardonagh Group, one of the largest private credit capital structures in Europe, decided to launch a high yield bond to partly refinance its overall $5bn debt stack, despite many market participants expecting it to go down the private credit route for the whole amount. 

That would have made it the largest direct-lending deal on record, instead the company marketed a $2bn-equivalentissuance of bonds comprised of $500m and €500m of 2031 SSNs as well as $1bn of 2032 SUNs. On Friday, with the price talk at or through the tight end of initial thoughts, leads added an additional $250m to the 7NC3 dollar SSNs, with the additional debt used to refinance TLB debt.

There will still be, however, a huge private credit term loan in the insurance broker’s debt stack.

Infrastructure services and construction group Kier made its HY debut with sterling-denominated notes — the first sterling bond of 2024 — offering a 9% coupon for £250m of 5NC2 SUNs.

The final rate came from IPTs of 9.25% and talk of 9-9.25%.

In the secondary market, Intrum's notes were once again the biggest losers in secondary market this week, falling by 12% on the 2026 maturities as seen in the screener below. This came on the back of a downgrade from S&P, following Moody’s downgrade to B3 last week. S&P still has the debt collector rated at BB-, but nonetheless some of the bonds are now in the 60s.

Europe’s largest debt collector launched a €50m tender offer targeting four of its outstanding euro-denominated bonds, with €2.95bn in principal outstanding. 

The France-based digital transformation company Atos also saw its 2024/25 debt dive this week, as it struggles to refinance. The group appointed a mediator on Monday to oversee talks with creditors, and canned its planned rescue rights issue, signalling a probable court-governed restructuring ahead.

9fin reported that a “sizeable” group of Atos SE’s bondholders have formed and appointed advisors, and that Atos has invited holders of the company’ non-exchangeable bonds to a call today (9 February). 

European LevFin Wrap — Syndicate strikes back

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