US LevFin Wrap — It’s nice to reprice, KKR picks banks for Cotiviti, UKG preps huge refi

David Bell

12 January 2024•5 min read

The US leveraged finance market was swamped with loan repricings this week, giving credit investors a flood of deals to analyze but few opportunities to actually deploy new money.

Roark Capital’s restaurant group Inspire Brands, battery manufacturer Clarios and market makers such as Jane Street and Citadel Securities were among the largest multi-billion-dollar repricing trades.

In total, the market was hit with 23 new loan repricing deals totaling around $32bn this week, according to 9fin data, some shaving as much as 75bps from the coupon.

Quite a deluge! This continues the same story we saw towards the end of 2023: the Fed-fueled rally has brought loan spreads to their tightest levels in around a year, and with few new money deals around, loan repricings are a fairly straightforward pitch.

Sources expect these conditions to persist, but as always the question is for how long.

“We’ve seen this movie a million times,” said a CLO manager. “The first couple weeks of the year, things are going strong and investors are saying yes to everything because they’re nervous about losing paper, but by week three, some really aggressive deals get done and they don’t trade well afterwards, and then you see people start to get a bit more skeptical.”

Researchers at BofA are estimating around $80bn-$150bn of loans could be repriced over the next three to six months, depending on market conditions. The bank said activity will be concentrated in loans with margins from 250bps-450bps.

This will no doubt put more pressure on the ability of direct lenders to compete — this week, 9fin reported that banks have edged out private credit in the bid to finance KKR’s acquisition of Cotiviti, for example.

Another factor to consider is how secondary market technicals are impacted: the loan rally and repricing wave has driven a wave of loan BWICs from CLO managers in recent days. Click here for a more in-depth explanation from our structured credit team.

Bonds are back

While loan repricings were the biggest headline, other deals in the primary market told a slightly different story.

Caliber Collision, an auto repair business owned by Hellman & Friedman, is out with a $2.5bn TLB due 2031 for a dividend recap. Though typically seen as an aggressive move, investors said they were comfortable with the dividend as it would raise Caliber’s low leverage closer to peers such as Mavis Tire.

Nuclear power service provider Westinghouse Electric turned the market’s focus to geopolitics as it pitched a $3.5bn TLB refinancing this week. After a bankruptcy in 2017, the company has benefited from surging demand for nuclear power in recent years thanks to high oil and gas prices, decarbonization efforts and more recently, the war in Ukraine.

And a new buyout financing hit the market yesterday, as Kohler Electric launched a $1.625bn equivalent USD/EUR TLB via BofA to back an acquisition by Platinum Equity. We flagged last month that the financing was coming, although sources had indicated back then they expected the financing would also contain a bond component.

Indeed, other borrowers this week including Greek yoghurt manufacturer Chobani, timeshare operator Hilton Grand Vacations and DIRECTV highlighted the attractive pricing available in the high yield market, which has also been starved of new paper.

Chobani issued a $500m SUN due 2029 at par to yield 7.625%, after bringing the coupon down from initial whispers of low 8%. The bonds were raised to take out the company’s existing 7.625% SUNs due 2025 and follow a $550m TLB raise in December last year to fund its acquisition of La Colombe coffee.

Hilton Grand Vacations raised a $900m TLB due 2031 at 275bps and a 99.75 OID and $900m 6.625% SSN due 2032at par, to fund its acquisition of Bluegreen Vacations.

Bankers following the Hilton deal said it would be a useful data point for borrowers in the pipeline that are looking to tap both bond and loan markets.

This includes a hefty $6bn-plus debt refinancing for software company UKG. The deal, which is being led by Nomura and JP Morgan, is expected to launch in the next couple of weeks with at least $2bn in bonds and potentially over $4bn of term loans, according to 9fin sources, though that could change based on investor demand.

Satellite TV provider DIRECTV meanwhile is today looking to price a $750m SSN due 2030, as part of an effort to extend and repay an existing 2027 TLB. See our editorial coverage, Bond Legal QuickTake and Credit QuickTake for a deeper dive on the credit story.

Tuning in

After all of those deals, it would be easy to forget how we started the week: with a bankruptcy filing for radio broadcaster Audacy.

Our distressed debt team had the lowdown on the restructuring support agreement after Sunday’s Chapter 11 filing sparked weakness in the trading levels of other radio broadcasters in the leveraged finance universe, including iHeart Radio.

With that in mind, we had a closer look at whether traditional radio operators can survive secular decline — and how the likes of iHeart, Beasley Broadcast Group, Cumulus Media and others might tackle their upcoming maturity walls.

Spirit AeroSystems is another HY issuer in the news for the wrong reasons, after one of its panels blew out on a Boeing 737 MAX last Friday. Spirit debt has recovered a little after a blip on Monday, with investors for now putting their faith in support from key customer Boeing.

DISH Network bonds on the other hand have continued to trade off after the company announced a series of asset transfers and designated unrestricted subsidiaries following its merger with EchoStar, which has spooked investors. The company has also hired advisors to work on strategic alternatives, while an ad-hoc group of bondholders is reportedly consulting with law firm Milbank.

Finally, we’ve continued to track the movement of former Credit Suisse bankers through the credit markets: here’s our latest (and last!) round-up of the moves.