Trading levels on Macy’s debt since the announcement suggest a degree of skepticism over whether or not it will actually happen. We’ve seen false alarms in the past — sale talks fell through for Macy’s in 2017, and for Kohl’s in 2022. But on balance, more sponsor interest in assets like this is probably a positive thing for leveraged finance. 

Sell-side sources say they’re heading into 2024 very light on the LBO and M&A front, but there’s increasing hope for a pick-up in dealmaking. Hope springs eternal among bankers, but there are some concrete signs of progress — Occidental’s $12bn acquisition of high yield credit CrownRock, for example, and KKR’s bid to acquire healthcare tech company Cotiviti.

"We're hearing that there's been a very strong pickup recently in M&A inquiry with underwriting banks,” said Kevin Cronk, liquid credit portfolio manager at BSP-Alcentra. “Lower rates are a big driver of that, as well as the general economic outlook and tight spreads. Markets are open.”

Have a seat

Let’s not hold our breath just yet — it takes months for M&A to work through this regulatory environment, and there’s still plenty of time for deals to fall flat. 

Take Medtronic, for example: we reported yesterday that the company officially walked away from a potential $7bn asset sale to Carlyle in late November, taking $2.5bn of debt financing out of the pipeline.

The financing opportunities that remain are being scrapped over by both bank underwriters and direct lenders. 

In the case of KKR’s $11bn bid for Cotiviti, bank underwriters appear to have the edge. The recent rally in credit — accelerated by Wednesday’s dovish Fed meeting — is helping banks pitch more aggressive pricing, though direct lenders are countering with PIK options and potentially a bigger debt package.

Similarly, both syndicated and private lenders are circling a sale process for outdoor furniture company Polywood in the hope of picking up the financing.

“We’re seeing much more private lender activity now,” said a leveraged finance lawyer. “People don’t want to deal with syndications.”

The shortage of new money deals as well as exit opportunities is partly why we’ve seen a string of sponsor-backed portfolio companies hit the market this week either to fund dividends to their owners, reprice or extend their existing loans, or….support Blackstone’s Taylor Swift-inspired Eras Tour??

“Repricings are the talk of the town again,” said a sponsor coverage banker. “In terms of new LBOs it’s light. The private credit bid is big.”

When the Fed says it will cut rates (from here — click if you dare…)

Not content with publishing a Taylor Swift-themed Christmas video, Blackstone also used this week to pay itself a dividend with a $500m TLB from banking infrastructure business IntraFi — a company that has benefited from increased concerns over deposit safety since the regional banking crisis earlier this year. 

The sponsor’s genealogy business Ancestry is also expected to bring a $375m four-year non-fungible TLB to part-fund a $500m dividend, according to a report from Moody’s.

Meanwhile, Carlyle’s media broadcasting business NEP Group offered existing lenders some PIK pricing sweetenersto help support a short extension of its debt, more than $2bn of which was due to mature in 2025.

Elsewhere, USI Insurance offered an interesting data point with one of the tightest triple-C bond coupons printed this year, according to 9fin data. The firm, which is owned by CDPQ and KKR, was also able to shave 50bps off the pricing of its $2.475bn TLB due 2029 with a repricing.

Health is wealth

Non-sponsored corporates found strong execution this week, with issuers including Community Health Systems able to upsize bond deals. The hospital operator dangled a generous 11% price talk on a new 2032 secured note to tender for existing debt, which was classified as a distressed exchange by S&P. 

Despite the company’s heavy debt load and thin free cash flow, there was enough lender interest to upsize the new notes to $1bn from $750m, and tighten pricing to 10.875%.

There has also been plenty of demand for energy credits. Many names in the sector are embarking on a refinancing push, and strong investor appetite is underscoring the industry’s position as one of the most heavily favored areas of high yield.

At the gnarlier end of the credit spectrum, our new structured credit team outlined the triple-C names that are weighing most heavily on CLO managers this year — and the private credit rescue scenarios that lenders are wishing for in their holiday hampers.

Speaking of rescues, Enviva is still in financial crisis. This week, we took a deep dive into the meltdown of the company and one of its backers, Inclusive Capital. These two intersecting stories tell another much bigger tale: the downfall of ESG in America.

Finally, anyone with an interest in the bankruptcy world should check out our 9Questions interview with Cliff White, the former head of the US Trustee Program. He gave his views on the fallout from the Judge Jones scandal and what it means for restructuring cases.

Other stuff

Kirkland & Ellis: is it party over for the world’s most profitable law firm? (FT)

Shari Redstone weighs sale of stake in Paramount Global (Bloomberg)

The year Twitter died: a special series from The Verge (The Verge)

Hedge fund groups sue SEC in effort to block short-selling rules (FT)

Ghosts on the glacier (New York Times)

Shohei Ohtani’s massive deferrals, Dodgers contract explained (The Athletic) 

Epic CEO Tim Sweeney: the post-trial interview (The Verge)

Apollo plans private credit product with $2,500 minimum investment (Apollo)