US LevFin Wrap — Chart taps primary, Integrity lenders get feisty, Nielsen holdout takes a bath

William Hoffman
+Bill Weisbrod
+ 1 more

9 December 2022•6 min read

The outset of an expected recession might not seem like the best time for transformative M&A, but Chart Industries is going for it. The issuer made the most of (relative) stability in the US primary market this week, attracting strong demand for $3.3bn of bonds and loans.

The gas liquefaction and handling company will use the debt to acquire its UK-based peer Howden. It’s tapping a big trend towards alternative fuels such as liquified natural gas and hydrogen fuel cells, which require compression technologies.

As one person described it this week, the deal creates a supergroup providing “pickaxes in the middle of a gold rush”. Clients can read our deep dive on the deal. If you are not a client, you can request a copy here.

Despite concerns that the debt would be overly expensive and weigh on free cash flow, investors were eager to get involved — although the price compression (pun intended) was too much for some of them.

“It has very strong demand, and we were initially going to go in until they tightened price talk,” one portfolio manager said. “But we think as spreads widen and the economy softens this is a name we’ll keep on our buy list.”

The strong syndication shows how much demand there is for new debt after a terrible year for HY issuance.

It has been one of the lowest on record for high yield supply, and a stream of rising stars leaving the index (Kraft Heinz, HCA and T-Mobile, to name a few) has created the largest pool of sideline cash on record, according to researchers at BofA.

The Chart deal is a good example of how that excessive sideline could help boost demand for the right issuers. “Essentially, we've never seen technicals better than this,” BofA’s high-yield credit strategist Oleg Melentyev said during a media call this week.

“The best part is we don't think it's over,” he added. “Issuers are trying to reduce their debt levels now that everybody realizes that high-interest rates are here to stay for a long period of time. So we think these technicals stay with us on a go-forward basis.”

Speaking of deleveraging, is there an upside argument for Coinbase bonds?! We don’t take sides here, but some people think so. Clients can read our full analysis of a hypothetical bond buyback at the company one source called “the Jay Leno of crypto”. If you are not a client but would like to request a copy, please complete your details here.

Getting chippy

There’s lender-on-lender violence in the streets.

The latest example comes courtesy of Integrity Marketing Group and its sponsor Harvest Partners, which proposed a new debt raise that could avoid triggering MFN protection in its existing $5bn unitranche loan.

As we detailed in our story and latest podcast, Integrity is seeking $300m to fund an acquisition; it proposed structuring the debt as an add-on to a loan that dates back to its 2019 buyout by Harvest. Alternatively, the company could also raise the funds through a revolver.

But either option might avoid triggering MFN protections, a prospect that has lenders fuming — especially given that it’s happening within the private credit market, which lenders have spent years extolling for being a ‘relationship business’.

Some of those relationships are about to be severely tested! Speaking of which, shout out to Bloomberg for its coverage of the pact between Carvana bondholders, led by Apollo Global Management and PIMCO.

Here’s the Wall Street Journal’s take on it, which not only quotes our very own CEO but also contains an excellent piece of caveating from Jeffrey Brown at Ally Financial, Carvana’s financing partner.

Carvana bonds, with the brakes off (via 9fin)

The Apollo and PIMCO-led creditor pact is only set to last through February (although it could be extended). The very existence of it is more evidence that an era of covenant shenanigans beckons — a prospect that has some investors talking tough.

“This is sort of the consequence of a number of years of loose financial covenants,” said Jens Vanbrabant, a portfolio manager for Allspring Global Investments. “Sponsors need us and we need them. If they want to finance new deals, and they consistently behave in a selfish fashion it's going to make it harder for them to syndicate new deals to market.”

One more piece of news about pacts/agreements/documentation before we move on: it appears some of Citrix’s banks have agreed to offload chunks of the company’s TLA debt, and are doing so before the end of the lockup period (which we reported on back in September).

No tendies for you

If you think you had a bad week, spare a thought for Nielsen tender-offer holdouts.

A couple of days ago we noticed some weird prints on TRACE, so we hit the phones. Turns out at least one bondholder missed the deadline to tender their pre-buyout Nielsen bonds at a premium to par, and then had to offload the stub they were left with — at 50 cents on the dollar.

Oops!

The worst part of it? The stub notes, previously unsecured, are in a waaaay better place in the capital stack after the buyout. Whoever scooped those up could bag a juicy return. Click here for the full story, it’s a fun one.

Thoma Bravo had a better week.

Despite difficult market conditions, the firm raised a whopping $32bn across three tech-focused funds, one of the biggest PE rounds of the year. Others such as Apollo and Carlyle have extended their fundraising efforts into next year.

Oh, and we also raised some money! Here’s the official press release on 9fin’s latest round, a $23m Series A+ to boost our coverage in the US (and here’s more detail from the fintech team at Axios).

Santa Claus rally

Whereas the bond market had just one issuer this week, the loan market is popping off.

There is an opportunity for slightly more challenged credits to come to market, but many are sticking to smaller add-ons or amend-and-extend deals given the high cost of borrowing.

Sources tell us bankers are out with early looks for more deals that could hit the market officially in the next couple of weeks, if conditions hold steady.

Smaller gifts this year, but gifts nonetheless (via Wikimedia)

Cable communications company Altice USA is a good example of the recent flurry of activity. It’s out with a more than $4bn amend-and-extend deal across two tranches this week.

Others, such as Iridium Communications and hotels operator Hilton, are out with deals to switch their existing Libor term loans to SOFR, as the much-maligned benchmark is set to be phased out from next June.

Pool equipment maker Hayward Industries, meanwhile, is raising new debt to pay down revolver borrowings and fund GCP. It went public during the pandemic after a boom in new pool installations; now, as the housing market falters, it’s looking to the aftermarket to stay afloat.

The largest issuer of new debt this week is paint and coating manufacturer Axalta, which tapped the market to refinance its existing TLB and extend its maturity wall. The $2bn TLB due 2029 priced at S+300 with a 99 OID, tight of talk at S+325bp and 97.5-98.5.

Axalta has a not insignificant exposure to China, where the easing of its “zero-Covid” policy this week is making waves. What does this mean for leveraged credit? We wondered this too, so we asked 9fin: here’s a primer on several credits and sectors that could benefit as China reopens. If you are not a client, you can request a copy of the primer here. You can also request a copy of any of the articles mentioned in the US LevFin Wrap by emailing team@9fin.com.