US LevFin Wrap — Libor is dead, Viking raids primary, Wolfspeed protects IP

Sasha Padbidri

29 June 2023•4 min read

At long last, we have reached The End of Libor. At 6.55am eastern time this morning, the benchmark had its last fixing, marking the end of its 53-year presence in global financial markets.

If you are or have been in any way involved in the Libor-SOFR transition over the last few years, we promise to honor your tireless efforts at 9fin’s very own Libor Retirement Lunch. We’re celebrating with pizza and a game of “Pin the Tail on the Pricing Curve”.

The transition hasn’t exactly been orderly. Leveraged loan coupon amendments have continued apace but there’s a lot to get through. You can hear more about the process in last week’s edition of our Cloud 9fin podcast, in which we caught up with Dan Ko of Eagle Point to talk about the post-Libor CLO landscape.

More drama could be on the horizon: the LSTA warned that if institutional loans are deemed to be securities (as part of the outstanding Kirschner vs JPMC case) new loans may be unable to use term SOFR as a reference rate.

Party in the USA

Back to primary: this week, Viking Cruises and Earthstone Energy were among the few high-yield issuers that launched and priced deals, as issuance winds down ahead of the July 4 holiday.

Viking seized the opportunity to refinance some of its remaining Covid-era debt, printing $720m of new unsecured bonds on the back of strong Q1 earnings. The refi frees up a bunch of valuable collateral that was pledged against new debt when the company was scrambling to raise cash during the pandemic.

Meanwhile, energy E&P company Earthstone priced $500m of SUNs to fund its acquisition of assets from Novo Oil and Gas. The issuer sweetened the deal by widening the yield and tightening the docs to compensate for some lenders’ concerns around leverage.

Also this week, arcade and restaurant chain Dave & Busters repriced and upsized its term loan due 2029, shaving 125bps from the original coupon of SOFR+CSA+500bps. The positive reception from buysiders is an improvement from last summer, when lenders were concerned about reduced consumer spending as the company sought funding for its acquisition of Main Event.

The new issue pipeline is expected to remain thin as the market heads into Q2 earnings season, although sources have suggested that banks could look to syndicate the Syneos Health buyout debt and Viasat’s hung acquisition financing before the summer is up.

“For the next couple of weeks companies will be in a blackout period, so there’s a bit of a lull right now,” a buysider said. “Any new deals that might come will still be marketed off Q1 numbers, but at this point in the calendar everything will be slower.”

Private because IP

Private credit notched up another milestone this week, with Apollo’s financing of semiconductor company Wolfspeed’s expansion plan. At $2bn, the deal is one of the largest non-LBO private credit loans ever.

What’s also unusual is that Wolfspeed is a publicly traded company, which is not the typical profile of a private credit borrower. According to our reporting, part of the reason the company chose the private credit route was the sensitive nature of the intellectual property in the collateral package.

Elsewhere in private credit, Ares announced its acquisition of a $3.5bn asset-backed loan portfolio from PacWest this week. The deal highlights how some of the larger private credit lenders are taking advantage of the regional banking crisis to diversify their operations.

“There are portfolios being floated around, but it’s not an area we’re going to play in,” said a banker at a large Wall Street bank.

“If capital weren’t constrained, then yes we’d be excited. The last thing we’d want is if we got a call from a PE sponsor asking us to support a big LBO and we said we just bought a bunch of loan portfolios so we can’t finance that.”