US LevFin Wrap — Playa and Four Seasons get busy ahead of holiday, Nielsen bankers seek TLB audience

Sasha Padbidri
+David Bell
+ 1 more

18 November 2022

More borrowers hit the primary market this week, taking advantage of what little time is left to get deals done before the holiday season. All told, it was a better week for LevFin than it was for crypto, or Twitter (although we’ll admit that’s a low bar).

Playa Resorts, and USI Insurance Services launched refinancing deals to push out maturities, as additional interest rate hikes loom. Meanwhile, Formula One and Four Seasons Hotels priced refinancings that launched last week.

“There is a pocket of strength in the market right now so anyone with a near-term maturity is using this opportunity to refinance,” said Christina O’Hearn, managing director at Pretium. “You don’t know what will happen in the next 6-12 months and it could be more volatile.”

“We are seeing strong demand for BB-rated paper with a couple of B3-rated deals that are testing the market,” she added.

And Nielsen launched the B2-rated $1.75bn TLB portion of its buyout financing this week, roughly two weeks after syndicating a $2bn bond (a move which came after the buyout closed). For more info on the TLB’s terms, check out our Loan Legal QuickTake, published today.

In another one of this year’s long-running LBO storylines, bankers finally funded Tenneco’s debt package on Thursday. But as we wrote this morning, the saga isn’t over yet — at least for the underwriters.

Racing through the market

People trying to cram LBO debt through the market are having a rough go, but higher quality names are finding a receptive audience.

High-speed motorsports racing series Formula One faced little resistance in pricing a $1.7bn TLB this week. The company, a subsidiary of Liberty Media, showed strong cash flows both from increasing viewership in-person and at home, as we detailed this week.

That led to a strong book build and speedy price progression.

Similarly, United Rentals was able to tighten pricing on its $1.5bn seven-year non-call three SSN to 6%, inside price talk of 6.125%. Investors liked the company’s strong performance, and the bond’s Baa3/BBB- ratings — although URI remains a high yield credit at the issuer level.

“There’s still a lot of cash on the sidelines, just because there’s been so little issuance,” said Nichole Hammond, high yield portfolio manager at Angel Oak.

The bond will finance URI’s acquisition of smaller, Caa2/CCC- rated competitor Ahern Rentals, giving Ahern bondholders a reason to celebrate.

As we explored in more detail in this piece, Ahern faced a $1bn maturity wall next year and its 2023 second lien bonds had been languishing in the 70s. They’ve rallied close to par since the acquisition was announced.

“I wish I had been smart enough to see that coming,” said one investor away from the situation. “That’s the holy grail when you get bought by a big bellwether like that and taken out.”

With leisure credits expected to perform well this coming holiday season, Playa and Four Seasons’ term loan offerings also got warm receptions from investors. Management from both companies noted that post-pandemic travel demand has helped to improve earning metrics.

The earnings outlook might be different for the building products sector, though. As we wrote this week, lenders are souring on certain names — especially those with heavy debt loads and exposure to residential property markets — as the housing market falters.

Software — hot or not?

OpenText’s acquisition financing this week demonstrated the continued appeal of software companies.

That’s despite increasing worries about how some highly levered software companies will deal with rising interest rates and slowing sales growth over the months and years to come.

The Canadian company priced a $3.585bn seven-year TLB and $1bn SSN due 2027 to fund its acquisition of British software company Micro Focus this week. The TLB cleared at 350bps over SOFR, pricing at 97 with a 0.5% floor, while the bond priced with a 6.9% coupon.

OpenText will double its debt load to around $9.3bn with the acquisition, but investors said they were comfortable with the company’s strong free cash flow generation and ratings profile (the secured notes carried Ba1/BBB-/BBB- ratings and the TLB was rated Ba1/BBB-).

“It’s a high-quality credit to us in this environment, and priced pretty tight,” said one portfolio manager looking at the deal. "I don't think rising interest rates are going to be an issue for a company like OpenText, they generate plenty of free cash flow and can absorb that.”

Green shoots

Electric utility Transalta also sailed through this week with a new green bond — the first such notes since Ford Motor’s offering in August.

The power company received a strong reception pricing $400m 7.75% SUNs due 2029 at par. That level was at the tight end of price talk in the 7.75%-8% area and the notes even saw strong secondary performance quickly trading up to a price of around 102.

Funds will be used to repay its credit facility and to repay its 4.5% SUN that matured earlier this week. An equal amount will then be allocated to green projects, but some ESG-focused investors said the deal was a non-starter because of the company’s legacy coal plant.

Nevertheless, the deal was well-communicated and investors still found the credit story strong, which allowed it to price with ease.

“We have seen some of that — what I would call more opportunistic issuance — that has come since inflation was lowered in the latest CPI print,” said Will Smith, director of US high yield for Alliance Bernstein.

“It’s still small numbers, but much better than where we were a couple of months ago.”