US LevFin Wrap — Northeast Grocery dishes up a feast, CLO pipeline fills, Enviva secured lenders appoint advisors

David Bell
+William Hoffman

24 November 2023•3 min read

Happy post-Thanksgiving recovery day to all who celebrate! We’ll keep this wrap short.

Primary markets tend to slow down during this holiday week, so our focus was mostly on the secondary market as private companies such as City Brewing and Alvogen posted quarterly numbers.

Beverage maker City Brewing reported higher earnings but lenders are concerned about how little of that is translating into free cash flow.

Generic drug producer Alvogen reported continued improvement after a poor 2022, despite a legal setback that, incidentally, bodes well for fellow high yield issuer Bausch + Lomb.

Taking stock

Broadly speaking, the LevFin market has calmed a little, after a spate of activity sparked by an influx of money into the asset class over the past two weeks. As inflows slowed down, market participants had a little time to breathe and assess the state of things.

Despite concerns over the economic outlook and rising defaults, average high yield and leveraged loan spreads are currently around 20bps-30bps tighter than the LTM average, according to data from JP Morgan.

The number of new CLO warehouses has climbed in recent weeks (see this piece from our awesome new structured credit team) perhaps partly thanks to certain banks returning as CLO investors.

This provides a solid bedrock of demand for new supply in the run-up to the December holiday period. But for some observers, the recent tightening has gone too far:

“I think there's a little bit of too much optimism right now in high yield,” said Steven Oh, global head of credit and fixed income at PineBridge Investments. “From an earnings and default outlook standpoint, high yield should probably be trading somewhere in the 425bps to 450bps spread range.”

In terms of primary, the main highlight this week was a $550m TLB refinancing from Northeast Grocery, which is offering a juicy 750bps spread to offset concerns about its geographic concentration in New York State. Commitments on that loan are due 4 December.

Speaking of groceries, Kim Kardashian’s buyout firm Skky Partners just inked its first ever deal. It’s a minority investment in luxury condiment maker Truff, which has deals with retailers including Whole Foods and Target and markets itself as the ‘Dom Perignon of hot sauce’.

Where there’s smoke…

There are very few signs that the recent volatility at Enviva, the world’s largest producer of wood pellets, is close to subsiding.

Having flagged the company’s problems months ago, we’ve been following the situation closely: earlier this week, we reported that Enviva’s secured lenders have hired FTI Consulting to manage negotiations with the company, which is in dire need of fresh capital after making a disastrous bet on pellet prices.

Holders of Enviva’s unsecured bonds (which have been swinging wildly in secondary trading) also have advisors.

In the software space, GoToGroup’s credit ratings continue to decline, despite some earnings improvement. Moody’s downgraded its corporate rating by one notch to Caa1 on Wednesday, citing high leverage and expectations of flat growth and a cash burn over the next 12 months.

We also took a deeper look into the commercial real estate sector.

So far, LevFin issuers haven’t broadly felt the immediate impact of rising rates and declining office occupancy (WeWork’s bankruptcy being a big exception). But we highlighted a host of industrial names in the space that could be impacted by slowing investment in the sector.