US LevFin Wrap — Citrix saga concludes, Matador, Noble and Valaris power HY, dividends return

William Hoffman
+Sasha Padbidri

6 April 2023•5 min read

In the season of rebirth that is spring, primary issuance showed signs of life.

Eight borrowers issued high yield debt after several weeks of inactivity, while the loan market also picked up its pace, shrugging off recent bouts of volatility.

Citrix was the headliner this week, but it was perennial issuer Ford Motor Credit that opened the festivities on Monday with $1.5bn of 6.8% SUNs due 2028. Three energy credits — Matador Resources, Noble Corporation and Valaris — also brought deals after OPEC announced it would cut production.

The expectation that peak interest rates are in sight is also encouraging borrowers back to the loan market, sources noted. If SOFR futures are to believed, lower base rates are on the way and could alleviate the pressure companies have felt on their interest expense.

Some CFOs are rolling back hedging arrangements in preparation.

Meanwhile, bankers are encouraging companies to step into the issuance window while the doing is good. That’s not exactly a surprise (bankers prefer deals to no deals) but to be fair, it’s hard to argue that holding out for the market to improve further would be prudent.

“Given the volatility and potential for a slowdown in the US economy, if the window opens up to access that liquidity, we're advising our clients to do that as quickly as possible,” one syndicate banker said.

Citrix clicks into place

The syndication of Citrix’s second lien debt got a lot of attention early in the week.

A Goldman Sachs-led underwriter group had been looking to offload those notes for months but a lack of audited financials for the combined Citrix and TIBCO business (now renamed Cloud Software Group) had delayed the formation of an OM.

Then, the regional banking crisis derailed market sentiment and all but shuttered the primary market, pushing the launch of the debt into Q2. So when a window appeared to open on Monday, Citrix jumped through.

“We were hoping that it would hit the market earlier,” said a banker who was close to the syndication. When the deal finally landed this week, the newly merged company revealed some unfortunate accounting mishaps.

Citrix’s bonds priced at 79 cents on the dollar for around a 14% yield, only slightly up from price talk in the 78-84 range. In the early days of secondary trading the notes are already indicated up five points to a price above 83.

The banks took some heavy losses on the sale but do appear to have timed the market better this time around compared to when they previously pulled the 2L notes in later September 2022.

Last September average effective yields shot 150bp higher to 9.5% compared to today where yields are trending down to around 8.25%, according to ICE BofA data.

Dividend debt

Loans remained active through the banking volatility but seemed to hit a higher gear this week with four deals priced and another four still in syndication.

“You look back on the last two to three weeks and it seems the loan market is shrugging off all of that noise,” one loan PM said. “The loan market is technically driven, and we're not currently seeing any signs of M&A or LBO activity and in the absence of that, most of the primary market now is still A&E, refi and a bit of dividend activity.”

Vehicle glass repair company Belron priced a $870m dividend recap loan at S+CSA+275bp that managed to tighten both pricing and spread through price progression.

Typically, debt-funded dividend payments are a hard sell for investors but a recent upgrade to investment grade at S&P to BBB- helped push this one over the edge as we wrote about in greater detail this week.

Power generation company Hamilton Projects dangled a 100bps consent fee to convince lenders to back a privately placed $161m non-fungible incremental loan to help pay for a $285m dividend along with cash on hand; some lenders grumbled, but the deal ultimately got done.

Private show

Other borrowers, such as Melissa & Doug, decided to forgo the syndicated markets entirely. The toymaker looked set to complete a proposed loan extension with an interesting PIK component last week, but then announced it had found an alternative.

In such a situation, the solution is often assumed to be private credit; this week, we reported this week that the company tapped Oaktree Capital for just such a solution.

Back in syndicated loan land, CVC-backed personal care products company PDC Wellness is hoping a chunky bump in pricing will get lenders to sign off on an amendment to push maturity from 2024 to 2026. Commitments on that that Nomura-led $649m deal are due on 12 April.

Meanwhile, in CLOs, the emergence of a new model developed in Europe — as well as efforts to implement a standardized credit ESG framework — could potentially pave the way for more ESG CLO issuance in the future.

And for some weekend reading, be sure to check out our 9Questions with Laura Cawley, a principal in BC Partners’ private equity capital markets team, for her thoughts on the recent bout of volatility and her favorite shows at the Lincoln Center Theater.