US LevFin Wrap — M&A green shoots and a securitization sandwich

Sasha Padbidri
+Bill Weisbrod

24 August 2023•5 min read

Is it the calm before the storm? Or time to gear up for the final stretch to earn that bonus?

Either could be the case. Because while new debt issuance was slow in the penultimate week before Labor Day, signs point to the M&A machine revving up, which in turn bodes well for both the broadly syndicated and private debt pipelines.

For example, 9fin reported this week that Audax Private Equity tapped bankers including Jefferies to sell its portfolio company FDH Aero, with syndicated and private credit financing packages possible.

We’re increasingly hearing about bankers readying teasers for auctions of private equity-backed businesses. It may not be a deluge like some other years (if the companies even sell before year end) but it would be a departure from earlier this year when owners were reluctant to launch into a market of expensive financing and depressed valuations.

“There will be a pickup in September but not a tidal wave like fall 2020,” said an M&A adviser. “Sponsors are under pressure to return capital to LPs while lenders are under pressure to put money to work.”

Direct lenders are also circling privately held music rights group BMI as the company draws closer to a potential buyout by New Mountain Capital. Debt financing discussions are still ongoing, but a unitranche loan of at least $600m could be provided to back the acquisition.

One major buyout is unlikely to go to be financed by either private or syndicated debt, however: sandwich shop franchisor Subway is set to use a whole business securitization to fund an acquisition by Roark Capital.

Back in February we wrote about what a buyout financing for the company could look like, and why a WBS would make sense. At $5bn, this would also be one of the largest such deals ever. It also highlights the rising popularity of asset-based, esoteric debt instruments.

Satellite snafu and the steel pipeline

The $1.35bn JP Morgan and BofA-led bond offering to back Viasat’s acquisition of Inmarsat is one of the most noteworthy syndicated deals expected in the fall.

But on Thursday the company reported a “power system anomaly” on its Inmarsat-6 F2 satellite, only a month after it revealed a malfunction on its ViaSat-3 Americas satellite. Debt trading levels held steady and the company said there’s “no material impact” to recent revenue and adjusted EBITDA guidance; 9fin previously reported that the company’s group had pushed back the debt syndication after the first malfunction happened.

US Steel executives also had a busy week as the bidding war drama for the company continued. On Wednesday, Esmark abandoned its attempt to acquire US Steel amid pressure from the United Steelworkers union, which is backing a rival offer from Cleveland-Cliffs. Sources following the situation said that a takeover by Cleveland-Cliffs would result in the combined company dominating the auto steel market.

For those keeping tabs on other longer-term deal prospects, Alvogen Pharma privately reported improved 2Q earnings this week, which could pave the way for a future debt refinancing next year.

And elsewhere in private company earnings, massive 2021 buyout Medline’s bonds traded down despite reporting positive 2Q earnings, which sources attributed to technical factors.

Balance sheet management

This week, several bankers told 9fin that a growing number of companies are investing in short-term government bonds to generate interest income — a move which could eventually improve their credit ratings.

On the topic of cash on hand, lawyers are looking at language in loan documentation to figure out whether lenders might be entitled to a paydown when companies generate cash by unwinding their swap arrangements.

CLO bonanza

Meanwhile, middle market CLOs are experiencing its busiest August on record. This week alone, HPS Investment Partners and Golub Capital priced CLOs, bringing total new issuance volume to $2.43bn. 9fin clients can read about these deals here and here.

Private credit veteran Antares finally made its BSL CLO debut this week — the firm signaled its intention to break into that asset class with the hire of Seth Katzenstein earlier this year (We spoke to him right after he joined Antares, check it out here).

Other issuers in the CLO market this week were Aquarian Credit Partners with its first new issue CLO in five years and MJX Asset Management with its first CLO in over a year. Both Marathon Asset Management and PGIM priced their third new issue CLOs this year (check it out here and here), while Nuveen became the first manager to reset two 2022 CLOs this year.

The CLO market also scored two wins this week with the SEC exempting “securitized asset funds” from its new private funds rule, which include CLOs. A years-long debate over whether leveraged loans are securities was finally resolved on Thursday when JP Morgan won a federal appeals court ruling which determined that loans are notsecurities.

Before you head off to enjoy the weekend, please take a look at our very own 9fin x Barbie collab. We’re obviously joking, but we did a deep dive on the leveraged credits that have been touched by Barbie magic and the results might surprise you!

We also caught up with Marathon Asset Management’s Curt Lueker for our most recent 9Questions, who told us about working at Marathon and the literal marathons he does during the weekends. Check it out here.