US LevFin Wrap — Holy sheet! Arconic rolls out tight pricing in hot market
- Nicolle Liu
- +Bill Weisbrod
- + 1 more
The loan primary market is sizzling hot, just like the sidewalk. And the blowout financing for Apollo’s buyout of Arconic might help set the tone for a busy few weeks before Labor Day, according to sellside sources.
With growing optimism that the US might steer clear of a severe economic downturn, there is strong demand among credit investors, as shown by the recent surge in refinancing deals and loan repricings.
“The primary market just seems really hot,” said a lender. “Pretty much every deal out there is going anywhere from well to very well.”
Amid this toasty backdrop, bankers found that investors had strong appetite for the debt backing Apollo's LBO of rolled aluminum maker Arconic. Lenders said there was plenty to like about the deal, but it was the resurgence of risk appetite and the lack of recent new money issuance that powered the syndication to blowout levels, sources said.
“Arconic is a good business,” said a syndicate banker. “It’s not the best business in the world, but people are clamoring for it because of the technicals and there's really nothing else to buy.”
Pricing on the $1.425bn 2030 TLB was tightened twice, taking the coupon to SOFR+450bps (from 475bps) and the OID to 99 (from 97-97.5). The $725m 2030 senior secured notes priced at 8%, well below initial price thoughts of 8.875%-9%.
“Apollo probably went into that deal expecting much more expensive financing than they're ultimately going to get,” said a second banker following the deal.
Primary shines
HR solutions provider CoAdvantage priced a dividend deal, off the back of strong earnings that have boosted by wage inflation in the past year. The new loan includes a portability clause, which could enable sponsor Aquiline Capital Partners to sell the company without requiring the buyer to refinance the debt.
Health and beauty product manufacturer KDC is tapping the credit markets to refinance debt. Lenders flagged high leverage and thin cash flow, and some are wary of a potential decline in customer spending — but the juicy spread at SOFR+500bps with a 96-97 OID might help attract demand.
There are plenty of other deals for lenders to consider. Check out 9fin’s loan and bond screeners for a comprehensive pipeline, but here’s a flavor:
- Fortress Investment is marketing a $800m amend-and-extend deal
- Mitchell International is trying to do a $150 term loan add-on
- Rain Carbon is offering $450m of senior secured second lien notes
- Generation Bridge is in the market with a $850m TLB
- Veritext is looking to raise $1.44bn of bonds and loans for a dividend recap
- J&J Ventures is also out a $375m non-fungible add-on
- Avient is out with a $832m TLB refinancing
- H.B. Fuller is repricing its existing $798m term loan
The more the merrier
Bankers and buysiders expect the wave of deals to continue, driven mainly by refinancing and repricing activity. “Activity levels picked up on the dialogue side,” one banker said. “The most I’ve seen since before Russia-Ukraine.”
The recent demand for paper is drawing the interest of issuers and bringing potential 2025 and even 2026 maturities into play for refinancing, said the syndicate banker.
It’s not yet moving the needle in terms of M&A and LBO debt. Wide bid-asks on valuations remain an issue, and borrowing costs are still high enough to constrain overly-aggressive cap structures.
“Even though the financing markets are much better, the cost of financing has clearly gone up,” said the banker.
The lack of exit opportunities through sales or IPOs will likely encourage sponsors to pursue more debt-financed dividends, the banker said, particularly in fairly recent LBOs with equity-heavy capital structures.
All that said, activity is definitely picking up. Some sources said they had seen more deal proposals cross their desk in the past two weeks than the rest of the year combined; others said that after months of slow activity, they were quickly having to adjust to longer workdays.
“All of our bankers are suddenly going to sellside pitches for bake-offs,” said a banker of the sudden pickup in early-stage M&A activity.
It’s not all smooth
There are still some wrinkles in the primary market.
Viasat’s bankers had been looking to offload the debt they provided for the company’s acquisition of Inmarsat over the summer, but syndication is now expected after the Labor Day holiday after a malfunction in the company’s ViaSat-3 Americas satellite, as we reported this week.
Elsewhere, discussions between Quirch Foods and middle-market sponsor CapVest regarding a potential buyout have collapsed due to disagreements over valuation. The parties were in exclusivity, and the financing was expected to be broadly syndicated.
Another factor putting pressure on deal-making is the FTC. We did a deep dive on how the agency’s increased scrutiny of M&A deals is affecting the leveraged credit market, in particular in the technology and healthcare space.
Over in the private credit market, we reported that Golub Capital is leading a financing for TPG’s buyout of Nextech — a rare example of a sponsor-to-sponsor deal, which have become less frequent in recent months because of lower valuations and high borrowing costs.
Meanwhile, there was some good news for Finastra which reported a 6% increase in EBITDA for its fiscal fourth quarter. The earnings report came as the company continues to attempt to tackle a mountain of looming debt maturities.
Other stuff
Citadel Securities trading revenue slides 35% on muted market (Bloomberg)
Rithm Capital to acquire Sculptor Capital Management (Businesswire)
KKR to sell audiobook publisher RBmedia (WSJ)
Private debt firms roil asset-based loans as liquidity heroes (Bloomberg)
Hedge funds seek to cut off $1 billion meant for opioid victims (WSJ)
US oil M&A jumps as private equity unloads shale assets (Reuters)
UBS is fined nearly $400m in Credit Suisse’s Archegos mess (NYT)
Will Hollywood try to make Barbenheimer happen again? (The Ringer)
M&A deal slump sparks investment bank turnover (Bloomberg)
Buying booze? Your face — or palm — could verify your age (Axios)