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Nicolle Liu

Sasha Padbidri

The long Memorial Day weekend and debt ceiling drama largely put the brakes on primary deal offerings this week, giving most people a chance to catch their breath — except the bankers and investors tussling over the financing for Madison Dearborn’s buyout of MoneyGram.

By and large, borrowers and bankers are adapting to the new normal of high rates and recession worries. High yield bond issuance hit $22bn in May, the highest volume in 17 months according to BofA researchers.

And yet, access to capital markets remains challenging for companies with low ratings or difficult credit histories.

As they worked to offload MoneyGram’s debt to outside investors, bankers at Goldman Sachs made numerous covenant changes and slashed pricing. They managed to shift it in the nick of time, just a day before the acquisition was due to close.

The company’s $500m 9% senior secured notes priced at 83 cents on the dollar, the deepest new issue discount so far this year, making for an all-in yield of almost 13%. The downsized $400m TLB was also priced at an OID of 83, with a SOFR+550bps coupon.

As we outlined in our deep-dive on the deal, MoneyGram faces a host of competition in the payment remittance space. Usually there’s a price for everything, but for some lenders even the eye-opening OID wasn’t enough to tickle their fancy.

“We couldn’t get there because of the business,” said one buysider. “Sometimes there is no right price. So we passed.”

Platinum Equity is also struggling to attract buyside interest for Aventiv’s refinancing and recapitalization deal (which has heavy self-help vibes). The deal is a best-efforts syndication, however, so the bankers won’t be quite as stressed out — and the sponsor still has some time before the debt goes current.

Commitments on the prison phone company’s TLB and senior secured note offerings were initially due on 12 May. There was talk a while back around scrapping the bonds to focus on building the loan book, but no deal has materialized. It hasn’t been officially shelved, but it doesn’t exactly look promising.

There’s a whole credit story to Aventiv, but from what we’re hearing, ESG considerations have been a major hurdle for many investors. Prison phone companies have long been in the regulatory and ethical spotlight, even if the company has tried to reposition itself in recent years.

But there also appears to be little appetite from new investors to support the existing lender base. “We’re not in it, so we don’t have to do some kind of self-help,” said one former lender to the company. “We’ll let someone else figure that out.”

Meanwhile, Copeland downsized its TLB to $2.275bn and upsized its TLA to $450m, as Blackstone finally completed its acquisition of Emerson’s climate technologies business.

Bankers had flagged this structural tweak as a possibility in May, when Blackstone pivoted to the broadly syndicated markets instead of drawing down a private credit facility. As such, this isn’t quite the same as the ‘emergency TLAs’ we discussed in our podcast last year — but it is another sign of how fickle the market for LBO debt has become.

With a fairly light primary calendar, rising downgrades and defaults are becoming a bigger focus.

Ten high yield issuers defaulted in May, on $7.2bn of debt in total — a significant pickup, according to BofA data. Recovery rates have been poor compared with past cycles, with single-digit recoveries piling up: Diamond Sports, Bed Bath & Beyond, First Republic Bank, Lannett and Envision are some key examples.

“We might have a quiet summer from a new issue perspective, but we might not have a quiet summer from a downgrade and default perspective,” said one investor.

One area that’s attracting attention for all the wrong reasons is office real estate, as the US embraces the post-pandemic reality of office occupancy and hybrid work. Some equity REITs, including Office Properties Income Trust and SL Green, have been downgraded to junk from investment grade.

Software is another sector that is facing challenges, after borrowers loaded up on cheap floating rate debt during the ZIRP era. Those coupons are now eating into cash flows as interest rates rise.

Yet clearly there will be winners and losers — for our latest 9Questions interview we talked to David Flannery from Vista Credit Partners about the resilience of enterprise software companies in a recessionary environment, and why he thinks his job can’t be done by artificial intelligence.

Somewhat surprisingly, pockets of consumer-facing sectors are holding up surprisingly well in this environment. In this feature, our reporter William Hoffman took a closer look at how YOLO millennials are boosting earnings for entertainment and travel companies.

Subway auction end in sight with Roark, Advent circling (Bloomberg)

Climate shocks are making parts of America uninsurable. It just got worse. (NYT)

The Padres spent big on players — then lost the TV deal that helps pay for them (WSJ)

Wall Street banks re-enter junk debt market (FT)

A confession exposes India’s secret hacking industry (New Yorker)

Hedge funds are deploying ChatGPT to handle all the grunt work (Bloomberg)

The AI revolution is about to take over your web browser (The Verge)

Fake signals and American insurance: how a dark fleet moves Russian oil (NYT)

More than 800m Amazon trees felled in six years to meet beef demand (The Guardian)

Companies push prices higher, protecting profits but adding to inflation (NYT)

The Gazprom-backed militias fighting in Ukraine (FT)

This article contains links to a number of 9fin articles and company pages. If you would like to find out more about how 9fin is a one stop shop, please take a look at our financials, comparables and search functionality.

US LevFin Wrap — MoneyGram goes to the wire, Aventiv goes to dial tone, defaults on the rise

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