US LevFin Wrap — BrandSafway sponsors step up, TMT in turmoil

Bill Weisbrod
+Sasha Padbidri
+ 1 more

20 July 2023•5 min read

Primary issuance has started to percolate as the corporate debt pipeline firms up after last week’s improving inflation data.

There are signs that leveraged buyout activity is warming up too, with over $8bn of debt financing for GTCR’s acquisition of Worldpay in the pipeline and KKR striking a $1.3bn deal to acquire chemical company Chase earlier today.

But only one leveraged buyout financing launched this week and sponsor exits still remain scarce, so refinancings and recapitalizations are taking center stage in the primary as loan prices rally.

“In the current environment with high financing costs, an uncertain economic outlook and buyers and sellers kind of unable to meet on valuations, our expectation is that we'll continue to see limited M&A related activity,” said Kevin Wolfson, leveraged loan portfolio manager at PineBridge Investments.

BrandSafway is seizing the moment to issue over $2.6bn of debt across a bond and a loan tranche, via Goldman Sachs and JP Morgan, respectively. The construction and engineering services business is facing a 2024 term loan maturity and was downgraded twice in the past 13 months.

However, over $1bn in new money coming into the business from sponsors Brookfield Asset Management & Clayton Dubilier & Rice is helping buysiders get comfortable with a dicey free cash flow outlook.

The sole LBO financing to launch this week was Apollo’s take private of aluminum products maker Arconic. JP Morgan kicked off syndication of a $1bn term loan this week to fund that deal, which values the company at $5bn and is supported by a $2.3bn sponsor equity check. A $725m senior secured bond portion is expected to follow.

Where there’s a will…

Sponsors can still find other ways to monetize their investments on the strength of debt markets. Take Aquiline Capital Partners-backed outsourced HR business CoAdvantage, which announced a $550m term loan syndication via Deutsche Bank to fund a dividend this week.

And in a deal that is essentially a dividend, printing company RR Donnelley raised $250m in 1.5 lien notes via Jefferies to take out PIK debt held by sponsor Chatham Asset Management.

You can argue that such deals are healthy because they show leveraged finance markets are open for business, or that they’re symptoms of frothiness and promote excessive borrowing by money-hungry owners. Either way, Aquiline and Chatham were looking to get paid.

Elsewhere in primary, Canadian gaming operator One Toronto Gaming priced its refinancing deal at the tighter end of guidance as buysiders were attracted to its dominance of the Toronto market and declining capex.

Janus International is also looking to refinance an existing TLB due 2025 as it gears up to grow its footprint through M&A. Price talk on the new TLB due 2030 is S+CSA+350bp-375bp (1% floor) with a 98 OID. Low leverage and strong free cash flow generation indicate that deal will go well.

And business information provider Dun & Bradstreet repriced its $2.666bn TLB due 2026 at SOFR+300bps, a 25bps decline. Lenders signed off on the deal despite the company facing multiple lawsuits over customer data handling, as well as unfair competitive practices.

Hello operator

In spite of generally improving demand for credit, the telecom and cable sectors featured a few high-profile meltdowns in secondary trading this week.

Highly indebted cable provider Altice France’s $1.5bn 10.5% senior notes due May 2027 were down over 11 points to around 44. The company’s entire debt stack sold off this week on news that its Portuguese office was raided and co-founder Armando Pereira detained as part of a corruption investigation. Check out our coverage from Europe on that unfolding saga and a look at how the company raises cash through hedging and derivatives trading.

Telecom company Lumen saw its $1.25bn 5.125% senior notes due 2026 sell off by 7 points to around 58. That was thanks to a double whammy of looming talks with creditors related to a possible transaction involving its Level 3 business (Bloomberg reports here) and a Wall Street Journal bombshell investigation on toxic lead-covered cables left throughout the US by legacy telecom operators.

Frontier Communications is another high yield issuer that could be impacted by lead cable-related liabilities, although the ultimate fallout is unclear at this point.

A BofA sellside report flagged the risk of fallen angels from the lead cable liabilities. “However, we note that AT&T is six notches away from HY and Verizon is nine notches away, i.e., there is a material cushion against such an outcome,” the report said.

Used car exchange, and DC weighs in on CLOs

Carvana stock was up 23% this week, after the company announced a deal on Wednesday to exchange roughly $5.3bn in bonds due 2025 and 2027 for longer dated PIK notes.

The deal will reduce Carvana’s debt by about $1.2bn and save it around $430m in interest expense. But S&P downgraded the business from CCC to CC this week, citing in part a below-par payout for exchanging bondholders and delayed cash interest.

Meanwhile on Capitol Hill, eight Republican members of the House Financial Services committee spoke out against new proposals from the National Association of Insurance Commissioners that would effectively boost their role in assessing the credit risk of insurers’ credit investments.

The politicians argued that the NAIC would be overstepping its bounds and acting as a de facto credit rating agency. Check out this week’s Cloud 9fin podcast for more on that topic.