US LevFin Wrap — Borrowers rush to beat summer heat, Libor deadline looms, debt is bigger in Texas

William Hoffman
+Bill Weisbrod
+ 1 more

22 June 2023•5 min read

There are two upcoming deadlines that pushed borrowers into the LevFin market this week.

One is the end of LIBOR as companies scramble to issue amendments or refi loans before the 30 June deadline. And the other is July 4th, when historically the market slows down fairly dramatically as market participants embark on summer vacation.

Those two factors led to a flurry of activity in the US this week with at least six bond and six loan deals announced, despite the shortened holiday schedule.

More deals could also come next week if they can get done before 4 July, but the market is bracing for a slowdown.

“It’s been a strong market in the first half of the year and we are probably due for a bit of a pause,” one high yield portfolio manager said. “We’re probably closer to the top of the market than we are the bottom, and I’m sure that’s why companies are coming to market rapidly.”

Bonds that priced included graphite electrodes manufacturer GrafTech International, which refinanced term loan debt. Consumer lender OneMain Financial also priced $500m 9% SUNs due 2029 that will be used to repay lower-cost outstanding debt.

In US leveraged loans, European gaming credit Entain tapped the dollar market this week to refinance its debt amid ESG concerns and chemicals companies Univar and Cyanco each issued new loans.

Univar twice upsized its offering to fund its buyout by Apollo and Cyanco is pointing to continued demand for gold as it looks to refinance an existing term loan.

The Fed’s pause in rate increases is helping to stabilize the market, but will it be enough to overcome summer fun in the sun?

“The market wants to get busy,” one buysider said. “The Fed paused its rate increases, so I am now willing to buy fixed-rate bonds because I won’t get whipsawed in duration.”

Transition deadline

Amend and extend deals have actually declined month-over-month in June, according to JP Morgan, but with the Libor transition deadline approaching by the end of next week more deals are expected to come.

JP Morgan estimates that 58% of the $1.69trn institutional loan market has transitioned to SOFR, 57% of which is through amendments instead of new issuance.

British gas station (sorry petrol station) operator EG Group is one borrower turning to new issuance to complete its transition, sources noted. EG Group is in the market with four new loan tranches including a hefty $2.79bn US dollar loan to tackle its 2025 and 2026 maturities.

Triple-C rated borrowers have been the slowest to transition, according to JP Morgan, and there could be a flurry of activity in the coming days as Dan Ko, a portfolio manager at Eagle Point Credit Management, discussed on this week’s Cloud 9fin podcast.

“We’ll see a large part if not all of the market transition in the next couple of days,” Ko said. “Because the downside is that you’re paying the prime rate, which is obviously not very attractive in a high rate environment like today.”

Lone Stars

Something is in the air in Texas as two companies Civitas Resources and Heritage Grocers each tapped the LevFin market to fund their expansions into the Lone Star state this week.

Civitas raised $2.7bn evenly split across two senior unsecured tranches to fund its acquisition of Permian Basin assets from Tap Rock and Hibernia Energy, both of which are portfolio companies of private equity firm NGP Energy.

The five and eight-year notes priced at 8.375% and 8.75%, respectively, which investors said looked attractive when compared with other double-B rated credits that trade at just under 7%.

Energy credits are strong year to date, and Civitas certainly fits the mold of increased M&A activity as we detailed in depth this week.

But HighPeak Energy, another Texas Permian E&P operator in the market, is struggling to price since the $575m five-year SUNs were announced nearly two weeks ago. Price talk for the all-in-yield already started in the mid-high 12% area and investors said the company may have to go even higher to clear the market.

“At some point I’d have to think they go with another structure,” one high yield energy analyst said.

It’s not all about oil in Texas. Hispanic foods store Heritage Grocers is also expanding into Texas for the first time with its acquisition of El Rancho Supermercado.

The company seeks to add-on $460m to its existing term loan debt in a deal that would help directly address investor concerns about increasing its geographic diversity. 9fin clients can read more about that situation here.

Total entertainment forever

Consumer-facing companies continue to attract attention in the market, especially those in the service industry.

Casual dining chain owner Brinker successfully priced $350m SUNs due 2030 at par with an 8.25% coupon. The Chili's and Maggiano's Little Italy owner will use proceeds to repay borrowings under its revolver.

Similarly, arcade chain Dave & Busters is repricing its existing TLB at what it hopes will be a more favorable rate than it received last year at S+500.

The company is looking to reprice at S+CSA+375 as the loan has traded favorably amid rising demand for experiences and arcades could be a cheaper entertainment option if the economy does decline, sources noted.

Hostess Brands seized on demand for defensive consumer staple credits to price a $985m TLB. The spread tightened to S+250 in from price talk in the range of S+275-S+300 and the OID was cut to 99.25 from 98.5.

But not all consumer credits are outperforming as notes for office supplies store Staples sold off in the secondary this week. First quarter revenue was up 3% and EBITDA was up 11.5% in earnings, but management guided to flat 2Q comps due to slowing return-to-office trends, sources said.

Staples’ sponsor Sycamore declined to comment while Staples did not respond to a request for comment.