US LevFin Wrap — Cotiviti concessions, Tricor-Vistra synergies, Lumen gloom

Sasha Padbidri

24 March 2023•5 min read

It’s been a hectic week, so we won’t offer our take on the Credit Suisse AT1 debate (if that’s what you want, see our latest coverage and also check out this article). For now, let’s skip right to what UBS’s acquisition could mean for the CS levfin franchise.

For years, this group has been a reliable factory for deals in the belly of the ratings spectrum, but it’s unclear if that fits into UBS’s post-acquisition gameplan.

The deal also comes at a time when competitors such as Jefferies and RBC — not to mention BMO, which just snagged a senior financial sponsor banker from BofA to be its head of leveraged finance — are increasingly active. The battle for the single-B bracket is hotting up.

Despite all the uncertainty, the CS team launched a loan syndication this week: a maturity extension for toy company Melissa & Doug.

Cotiviti cap

Speaking of active deals, we reported yesterday on negotiations around the proposed $5.5bn unitranche backing Cotiviti’s buyout by Carlyle, which is being provided by a large group of direct lenders.

Even as it offers a generous PIK component, the lender group appears to have won a concession in the form of a cap on EBITDA add-backs. Caps like this are rare in private credit deals, especially jumbo unitranches — although they are increasingly common in the European high yield market, as shown by the chart below.

It’s an extension of a trend we started to see in the US private credit market late last year, as lenders fought back over things like MFN protection and super-priority revolvers.

But that doesn’t mean lenders are totally inflexible. As Dan Pietrzak of KKR put it in our latest video interview, they may be able to extract concessions in some parts of the credit agreement even while offering more aggressive terms in others.

“I don’t think the private credit lenders in any deal these days are trying to lean in to being more aggressive,” he told us — you can watch the full video here.

Primary moments

Buysiders also won concessions in the syndicated market this week, as Momentive widened pricing on its refinancing deal. Bankers launched the syndication into a tough market (mid-banking crisis), but to be fair, the chemicals company’s refi runway is running out.

Elsewhere in the chemicals space, lubricant and fuel provider RelaDyne also widened pricing on an add-on loan to funds its acquisition of SunCoast. The deal is a scale play, but some sources said it would make the company more vulnerable to cyclicality.

Meanwhile, Goldman Sachs is syndicating a $1.66bn-equivalent TLB to support the merger of BPEA EQT’s Asia-focused business services firms Tricor and Vistra. Sources looking at the deal cited increased cost savings and cross-selling opportunities as plus points, but remain cautious of ongoing market volatility.

Deals from US Silica and Mitratech also priced earlier this week, although both loans cleared at the wider end of guidance (check out our deep dives for US Silica and Mitratech). Elsewhere in the quiet primary, Howden/Hyperion Insurance launched a $500m incremental loan.

In the absence of a robust leveraged loan primary pipeline, CVC Credit and Ares are taking advantage of a drop in secondary loan market prices to launch print-and-sprint CLO transactions. More could follow if volatility persists.

Secondary situations

On Wednesday, Norfolk Southern chief executive Alan Shaw testified before the US Senate, after one of his company’s trains spilled hazardous chemicals in eastern Ohio last month.

How are credit investors reacting to the disaster? Ahead of the hearing, we did a deep dive on whether companies that produce hazardous chemicals and help transport them could come into focus for ESG-conscious investors. Read the full piece here.

Elsewhere in the secondary market, we did a deep dive into a debt exchange offer from telecommunications company Lumen Technologies, which is sparking a renewed debate about the company’s ability to address its debt in a few years’ time. There could be implications for other credits in the sector.

The exchange would clear some maturity runway for Lumen and provide it more time to work through the inflationary environment, which is slowing down its push into at-home fiber. But the new notes have higher coupons, just as cashflow is dwindling — so it’s a good job the company’s $5bn maturity wall doesn’t appear until 2027.

Also this week, Medline reported a year-over-year rise in sales and EBITDA for the fourth quarter of 2022, following higher patient volumes in its acute care segment and surgery centers.

If this week’s news cycle has left you feeling exhausted, consider unplugging with this topical book recommendation from Dan Zwirn of Arena Investors. And if a 368-page tome feels a bit much, check out Zwirn’s hot-takes on credit markets in our latest 9Questions.