Cash is being sucked out of loan funds, and CLO formation has been sluggish — especially if managers don’t have captive equity — which is weighing further on demand. The increasing number of CLOs exiting reinvestment also puts extra pressure on companies trying to deal with upcoming maturities.

Prepaid card provider Blackhawk Network, for example, pulled a $1.75bn TLB amend-and-extend effort on its 2025 loan. Refinancings for Nouryon and Kindercare, both well-liked names, are also being complicated by reinvestment-restricted CLO holders, according to our sources.

“It’s manifesting in the refinancings now,” said a portfolio manager. “More and more CLOs are exiting reinvestment period and that’s causing trouble with extending maturities. Loan mutual funds are also in outflow mode.”

Bumpy ride

Even for the likes of Cvent, which priced $900m of debt in the bond and loan market on Thursday, lenders were able to extract some concessions on the docs as the deal moved through syndication ahead of schedule.

In a reverse of current bond versus loan trends (more on that later) the event software business shifted $100m of its LBO financing to a $500m TLB and printed a downsized $400m SSN. A sizeable equity check and positive trends in the events industry helped support Blackstone’s bet on hospitality with the deal.

More broadly, there are plenty of reasons why investors might be feeling skittish about extending their exposures to low-rated, heavily indebted companies while maybe heading into a downturn.

And as the spate of bankruptcies highlighted last weekend, the cracks may already be showing.

“We had seven, eight bankruptcy filings in the same day — we hadn’t even seen eight bankruptcy filings in one quarter in recent quarters,” said David Golub, president of Golub Capital, speaking at a CLO conference held by the LSTA and DealScribe earlier this week.

“There are signs of stress in the system,” he said. “It’s going to be a bumpy period compared to what we’ve been used to over the last 10 years.”

Getting creative

As credit stress increases, we’re seeing more attempts by companies to boost liquidity by pitching lenders against each other.

One Rock Capital-backed Robertshaw, which designs and makes components for white goods, raised $95m of new money last week in the form of a super-priority first out loan that primes other lenders, according to 9fin sources.

The company selectively gained support from certain lenders including Invesco and Bain Capital Credit for the new tranche as part of a distressed debt exchange, sources said.

Another example is decor retailer At Home.

That company, which has been struggling under high freight costs, low inventory and shifting consumer demand, completed a debt exchange last Friday that effectively swapped unsecured bondholders into new secured notes, alongside a new $200m private placement.

Understandably, trading in the company’s debt was volatile — the existing secured bonds dropped over 10 points, but the old unsecured paper surged back to par on a short squeeze after trading in the 50s as recently as late April.

“It basically crushed a bunch of shorts on the unsecured so there was a race to cover,” said one investor following the trade. “Now you have parity with the secureds plus you have a better coupon.”

But while such maneuvers may buy companies some time, they often do not work out as long-term solutions.

Physician staffing business Envision Healthcare was one of the week’s filings, roughly a year after ticking off some lenders by moving its AmSurg business into an unrestricted subsidiary. And Platinum Equity-backed aerospace supplier Incora is reportedly eyeing Chapter 11, after it issued priming debt last year.

Doing it for the ‘gram

M&A and LBO activity may be sluggish, but financing packages for Madison Dearborn’s take-private of MoneyGram and Platinum’s merger of Solenis and Diversey should give a good insight into how confident lenders feel about the economic outlook next week.

MoneyGram is part of the old guard of money transfers as tech and crypto bros muscle in on the action, but the company is wagering that it can transition to a nimbler operation away from public markets.

Solenis, meanwhile, is trying to convince lenders that combining an industrial cleaning products business with water treatment and pool chemicals makes perfect sense, though some are skeptical.

Commitments are also due next week on PG&E’s attempt to bifurcate and extend its $2.674bn term loan B due June 2025. The deal comes as California heads into its peak fire season, a risk that is giving some lenders pause.

Loans to bonds

With the slowdown in the CLO bid and other technical pressures, plenty of lenders are choosing to take out some of their floating rate debt with high yield bonds. Pricing is also a factor given where SOFR and Treasury curves are trending, as we explored earlier this week.

Liquid natural gas company Venture Global priced one of the biggest deals following that trend this week. This morning it launched an inaugural $4bn two-part bond deal to take out a 2025 term loan, after upsizing the deal from $3.5bn.

It’s not all one-way traffic from bonds to loans, though.

Prison communications company Aventiv is considering dropping a $400m bond as part of a $1.2bn debt refinancing, to instead focus on raising the cash entirely in the loan market.

Aventiv is a somewhat unique situation, given the ESG concerns around private corrections lending, but like the examples of Robertshaw and At Home discussed above, it illustrates how borrowers may be forced to get more creative to tackle upcoming maturities.

Take Finastra, for example. We reported earlier this week how the software company is exploring a $2bn second-lien PIK loan as part of a private credit solution for its $4bn of debt coming due in the next 12 months.

Even if private credit plays a bigger role in levfin markets in the coming months, some industry heavyweights think the market’s growth is unsustainable — and predict the broadly syndicated market will come roaring back.

Disappearing act

Until that comeback, though, the rise of private credit will likely contribute to the shrinkage of the high yield asset class, alongside rising stars, calls and maturities.

Occidental’s $17.6bn of bonds were boosted to investment grade by Fitch this week, making it the third largest rising star on record behind only Ford and Kraft, according to analysts at JP Morgan.

They said the upgrade takes the contraction in the HY market to around $50bn already this year — around 4% of the outstanding market.

The loan market, they add, has also shrunk by around 6% since June 2022 to around $1.51trn, after growing by $1trn over the past decade.

Bank of America has a handy chart of all HY issuers that are just one upgrade away from IG, though it points out that rising concerns about US growth might lead rating agencies to pump the brakes on rating upgrades, as they did in 2015 and 2020.

Earnings round-up

It was a busy week for private earnings, so here are some highlights from our reporting:

• Price hikes and margin improvements drove EBITDA growth at Dunkin’s owner Inspire Brands (the company’s owner Roark Capital is rumored to be considering a bid for the sandwich chain Subway).
• Mavis Tire Q1 earnings were boosted by rising spending on auto repairs, as customers held onto their cars for longer while labor and parts shortages pushed prices up.
• TeamHealth EBITDA took a hit from lower-margin contracts, as talks continue regarding its upcoming $1.6bn 2024 TLB maturity.

Other Stuff

Private jet disrupter: the debt-fuelled ascent of Thomas Flohr’s VistaJet (Financial Times)

A 32-year-old nears billionaire status by using AI to broker Japan mergers (Bloomberg)

Calpers signals ‘appetite’ to increase bets on private equity (FT)

Private equity heads towards consolidation (WSJ)

Republican-led states move to block Biden’s ESG investing rule (Reuters)

New York City is sinking due to weight of its skyscrapers, new research finds (Guardian)

Buckle up because El Niño is almost here, and it’s going to get hot (The Verge)

This article contains links to a number of 9fin articles and company pages. If you would like to find out more about how 9fin is a one stop shop, please take a look at our financials, comparables and search functionality.