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This is our weekly newsletter on all things US leveraged finance, from the latest trends to in-depth coverage, to people moves — sign up to get these updates in your inbox each week.

Christmas is round the corner but there were still a handful of notable deals in the leveraged finance pipeline this week, which we’ve detailed below. We’ve also taken the opportunity to muse on next year’s M&A activity and pick out some highlights (and lowlights) from the leveraged finance market in 2024.

The final tally (more or less) — YTD primary USD issuance via 9fin bond and loan screeners. (Chart)

We spoke with R. Jake Mincemoyer, global co-head of debt finance at A&O Shearman, for his take on what to expect in 2025 — as well as his favorite holiday traditions. Like most market participants, lawyers are expecting a steady increase in work relating to M&A transactions next year, fueled by optimism around a potentially lighter regulatory outlook, a more stable market backdrop with firmer exit opportunities and increasing pressure on funds to transact.

“There are still a few worried about the valuation gap between buyers and sellers but the pressure on funds to sell has only grown over time and we now have a more positive outlook across the board,” he said.

We had a deeper look into what’s driving M&A expectations next year in this outlook piece.

Deal activity has already started to fire up — banks are preparing a syndicated debt package to fund Bain Capital’s potential buyout of Little Caesars and Wingstop franchisee Sizzling Platter, according to 9fin sources.

Quikrete’s $11.5bn acquisition of building materials company Summit Materials which is expected to be funded with around $7bn of new bonds and loans early next year.

The question is, while this optimism around the incoming administration might drive more strategic M&A, can it support an increase in sponsored LBO activity?

A few deals are starting to percolate: banks have lined up debt commitments for Stonepeak’s $3.1bn take-private of Air Transport Services Group; Apollo’s packaging company Novolex announced plans to take packaging company Pactiv Evergreen private in a deal valued at $6.7bn; and Carlyle Group is acquiring Baxter’s kidney-care unit Vantive for $3.8bn, for just a few examples.

But not everyone is convinced that broadly syndicated markets will see the kind of meaningful increase in LBO activity that investors are hoping for — particularly when private credit remains a compelling alternative for sponsors.

“Expectations are calling for an increase [in LBO activity], but we’re still in a cycle where even though spreads have tightened, the ultimate historic standards are not that low and equity valuations are pretty high,” said Jeremy Burton, a leveraged finance portfolio manager at PineBridge Investments. “So I think that’s just making a lot of deals tough from a return-on-equity perspective for sponsors.”

Debt investors may have had their gripes about the lack of new supply and a record amount of loan repricings in 2024, but overall returns have been solid — the high yield market has generated total returns of around 8.9% YTD according to JP Morgan, slightly lagging the loan market which is up around 9.2%.

Outperforming sectors in the HY market this year include telecoms (+14.48%) and automotive (+11.98%) while underperformers include media (+6.35%) and utility (6.54%). Conversely on the loan side, the winners have been telecom (+13.67%) and utility (+10.92%) and the biggest underperformers were automotive (+5.71%) and food/beverage (+7.31%), according to JPM data.

Here are some of the more in-depth features the LevFin editorial team tackled on specific sectors this year, in case you missed:

Consumer lending: Past due — Consumer delinquencies rise but lenders remain in the driver’s seat(November)

Gaming: Casino consolidation — Does an M&A spree and weakening consumers mark the peak for gaming?(August)

Building products: To the window, to the wall — Building products companies hit the market with a new story(August)

Food and beverage: Distress is on the menu for more restaurant borrowers (July)

Oil and gas: Release the Kraken — Energy debt finds demand as producers eye expansion (July)

Broadcasting: Prime time — Can broadcasters pay down debt amid subscriber declines? (March)

Automotive: The big EV car crash — 8 credits that tell the story (March)

Insurance: Will inflation-friendly insurance brokerages keep shining? (January)

Solar energy: Selling sunset — Distress builds in the residential solar market (January)

A new LNG tanker at Venture Global, featured in our July story on energy credits (via Venture Global)

One of the bright spots in HY overall was the low default rate — largely seen as a function of lower rated credits migrating to direct lending markets and increasingly prevalent liability management exercises (which may still translate into defaults later down the line).

As we outlined this week, some market participants are hopeful that HY default rates will continue to drop further next year, after they fell around 100bps to 2% this year according to Fitch.

“Unless there’s one or two big restructurings around the size of Altice, I think that hard-weighted default rate is going to stay low,” said Burton. “I’m more curious to see what happens in 2026 and 2027 when we start to see a fair number of these 2021 vintage deals have maturities coming up in 2028.”

Overall LBO volumes 2024 weren’t much to get excited about, even if they increased from the slump in 2023. But we found the time this week to recap some of the biggest deals that hit the market: refresh your memory of the 2024 vintage and some of the key themes here.

A big theme of course was the repricing wave that saw portfolio managers give up spread on their loans often multiple times. According to 9fin data, 47 loans worth a combined $49.43bn were priced at SOFR+175bps, the lowest in the sample.

The handful that landed rock-bottom borrowing costs for non-repricing purposes included:

Consumer credit ratings group TransUnion, which amended and extended a $1.89bn SOFR+175bps TLB due 2031 from its original SOFR+200bps coupon and maturity date in 2028

IT services provider CACI International, which issued a $750m SOFR+175bps TLB due 2031 in October to partially fund its acquisition of rival Azure Summit Technology

Landscaping service Asplundh, which issued a $1bm SOFR+175bps TLB due 2031 that in part refinanced existing debt and funded the acquisition of electrical transformer company Voltyx for $835m

Electrical components maker Celestica, power utility Calpine and discount clothing chain Burlington issued a combined $2.61bn of TLBs at SOFR+175bps for dual refinancing and general corporate purposes

At the other end of the spectrum, among floating rate loans the highest coupon printed was for the debut issuer Iowa Tribe of Oklahoma with its $200m SOFR+900bps TLB due 2030. According to Moody’s, the loan will primarily be used to fund construction of a new Harrah’s casino between Tulsa and Oklahoma City with Caesars Entertainment.

The most expensive bond deal printed this year was from lumber products company Mercer International, which issued a $200m 12.875% SUNs due 2028 as part of a refinancing. That newly issued debt didn’t do much to bring down the company’s almost entirely unsecured capital structure, which stood at 8.3x net leverage as of 30 September.

In the secondary market this week, craft retailer Michaels Stores’ bonds and loan debt popped following a 17 December call, where company executives revealed it bought back approximately $73m par worth of its senior unsecured notes due 2029 in recent weeks. But whether it can maintain or improve same-store sales to offset potential tariff hikes remains to be seen, sources told 9fin.

Michaels investors hoping for a rainbow (via Michaels press room)

The new issue pipeline may have thinned since the early December repricing wave, but several deals stood out this week, including an unusual $825m five-year loan for hospitality technology group OYO which included a two-year non-call period, a rare feature in the loan market.

Final price talk on the B2/B/B rated loan was widened to a spread of 800bps over SOFR, from 750bps, and the OID was set at 97 from talk of 97-98. This came alongside document changes, according to sources. The call price was also increased to 104 from 103.

The company is using proceeds to finance the $525m acquisition of Motel 6 from Blackstone and refinance existing debt.

There was also a rare sustainability offering from real estate investment trust Starwood Property Trust. The company said that it will allocate an amount equal to the net proceeds from the $500m of senior unsecured sustainability notes due 2030 towards recently completed or future eligible green and/or social projects. The spread on the bonds, which was swapped to SOFR+255bps, is also its lowest floating rate spread in six years.

Specialty consulting platform Ankura also caught investors’ attention with its amend and extend effort. The B3/B- rated company launched a repricing of its $925m term loan B due 2031 last week, asking for a reduction as much as 100bps on its SOFR+425bps spread. The loan eventually priced at SOFR+350bps, on the wider end of initial talk of SOFR+325bps-SOFR+350bps.

“350bps is normally pretty aggressive for a B3-rated credit, but this all boils down to supply and demand,” said a buysider following the Ankura deal. “Issuers are using this time to push hard to see if they can get the deal done. And it did.”

Affirm taps ‘megatrend’ of private credit to sell more loans, operating chief says (WSJ)

Alas, Blackstone has made another fun-washing Christmas video (Financial Times)

Apple urged to scrap AI feature after it creates false headline (BBC)

Companies that spent billions on M&A are now selling for peanuts (Bloomberg)

High on hope, Wall Street hears what it wants from Trump (NYT)

David Bonderman, 1942-2024, private equity’s globetrotting rock star (Financial Times)

Elon Musk taps loyalists to boost staffing for DOGE effort (Bloomberg)

SEC’s top accountant keeps close eye on firms’ private-equity deals (WSJ)

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US LevFin Wrap — Closing the door on 2024 and looking ahead to 2025

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