US LevFin Wrap — Fall flurry as NCR Atleos, Forward Air and Fogo clear the market

Nicolle Liu
+Bill Weisbrod

21 September 2023•4 min read

If you love autumn, with the first crisp winds of September, apple picking and thinking about Halloween costumes, you might be wondering — does it get any better than this?

And if you’re a leveraged debt issuer with a financing need, you might be thinking the same thing.

“For issuers who have been waiting out the opportunity to come to market and reinvest, we don't think they're really going to get a better opportunity anytime soon,” said Collin Martin, director of fixed income at the Schwab Center for Financial Research.

After all, high yield spreads are near 2023 lows and way down from highs of last year. Leveraged loan prices meanwhile are near a 16-month high around $96, according to JP Morgan, as the market shrugs the Fed, sliding equity markets and rising rates.

It’s not surprising that this has drawn leveraged borrowers to issue debt for a range of funding needs. This includes industrials business CPM with a dividend recap, ATM supplier NCR Atleos to fund its spin-off from NCR Corp, and banks shopping the buyout debt for KKR’s acquisition of Simon & Schuster.

Demand for these recent deals bodes well as bankers, sponsors and sellers look to forge ahead with M&A processes that are currently in the works. It also points to a swell of refinancing activity as corporates come to terms with high rates and tackle upcoming maturities.

“It feels like it’s going to be pretty busy over the next couple weeks and months,” said a banker.

What’s up, docs?

But as supply increases, it’s become clear that investors have been willing and able to push back on loose documentation, especially on riskier deals.

“The ones you are seeing doc changes on are the more cuspy ones out there,” said a buysider.

To shore up demand for NCR Atleos’ spin-out financing, leads shortened the tenor on both its loan and bond tranches while widening OID and making document changes such as a maximum total leverage covenant with annual step downs. Check out our story on why lenders were cautious, as well as our Legal QuickTake and Credit QuickTake on the deal.

Trucking company Forward Air also widened pricing and made some lender friendly changes to the loan portion of its acquisition financing package. Some prospective investors were less than enthused about the company’s acquisition of Omni Logistics, which could irritate existing clients who compete with Omni. Here are 9fin’s Legal and CreditQuickTakes for that one.

In Fogo de Chao’s $550m term loan syndication, lenders extracted concessions on multiple covenants even as the sell side tightened both the loan’s coupon and OID.

While not document related, EQT had to inject significantly more cash into testing company Prometric (if you took the CFA exam, you might have been a customer) than it originally planned to get lenders on board with an amend and extend, as a result of feedback during premarketing.

Meanwhile a JP Morgan-led bank group was finally able to offload Viasat’s hung loan and bond debt from the troubled satellite company’s 2021 acquisition of Inmarsat. The banks had to offer one of the steepest OIDs in recent memory to get the bonds off their books.

In high demand

While some lender discipline manifested this week, other deals flew off the shelf.

For example, industrial equipment supplier CPM upsized its five-year term loan due 2028 to $1.215bn from $1.13bn, and it also tightened the pricing. Its sponsor American Securities is taking out a dividend as part of the refi, touting improvements in both EBITDA margins and operational efficiency under its ownership.

Worldpay’s buyout financing was upsized to $5.2bn from $5bn (including a €500m TLB due 2030). It also launched a $2bn SSNs due 2031 and £700m SSNs due 2031 this week. We published a Credit QuickTake and a Bond Legal QuickTake on that deal too.

And back to the topic of seizing the moment, lenders are wondering if Abercrombie & Fitch will refinance its upcoming maturity soon, as its sales and operating margins have been rising thanks to improving freight and raw materials costs. However, some debt investors are still skeptical about long-term trends in the apparel sector.