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Nicolle Liu

Are the syndicated debt markets really back? Kind of.

The rally in high yield bonds and loans is helping banks pull back some of the market share that direct lenders carved out in recent years. One example is UK insurance broker Ardonagh, which is bringing a $2bn-equivalent syndicated cross-border financing alongside an expected $3bn private credit financing, after reportedly considering a $5bn all-private solution.

Sponsor-backed companies including Clearlake Capital’s Crash Champions and Platinum Equity-backed Husky Injection Molding also highlight the attractiveness of cheaper BSL financing over direct lending: Crash Champions refinanced a private credit facility while Husky was considering a private refinancing solution before pivoting to syndicated markets.

As well as tighter pricing, banks are winning over borrowers such as Waupaca Foundry from direct lenders with looser covenants, although direct lenders are not giving up easily — some are trying to fend off competition from banks by offering to cut the cost of their loans and support dividend recaps. 

But M&A is still slow. So, we’ll hold off on declaring syndicated debt issuance fully back until we see how issuance looks if and when the LBO machine gets whirring again.

In the meantime, repricing activity also remains heavy, though the pace has slowed since mid-January. For a full breakdown of January issuance across bond and loan markets, see our primary market review here.

This week, United Rentals cleared the 175bps pricing level when it refinanced its term loan, making it the tightest loan spread seen in the primary so far this year, and breaking through the resistance seen on other deals against sub-200bps pricing.

Investors said strong CLO formation and the lack of new money supply are creating attractive conditions for loan issuers.

“It’s definitely a seller’s market,” said a portfolio manager.

It’s a similar story on the bond side, with sports brand company Amer Sports said to have drawn a huge order book for its $800m SSN due 2031, allowing lead bookrunner Goldman Sachs to upsize and price at the tight end of talk at 6.75%. The bond was part of a cross-border refinancing package in euros and dollars following the company’s IPO in January, and included a $500m TLB due 2031.

"Everything's coming really oversubscribed, with a lot of reverses,” said another investor. “Initial talk means nothing anymore.”

Office Properties Income Trust also chipped away at its maturity wall with a $300m SSN, following a $425m loan and revolver launch last week.

The hot loan market is also allowing sponsors to reduce the size of the preferred equity checks they were kicking in to support tricky refinancings, including the Crash Champions and Husky deals.

Sponsors are also taking out equity via dividend financings to juice returns in the absence of attractive exit opportunities. Playcore, Genesys and Consumer Cellular were among those taking advantage this week. Researchers at BofA said loan-led dividends over the past three months have reached $8.3bn, the highest tally in the past two years.

Direct lenders appear to be in the lead to finance a $2bn debt package for the buyout of software Alteryx by Clearlake and Insight Partners, for example. 

And certain deals hitting the syndicated market have run into difficulties, serving a reminder of why some borrowers prefer the stability of private credit execution.

“Some if it is the human side of just being easier to deal with,” one debt finance lawyer told us this week. 

Bank of America for example had to widen the pricing of Kohler Energy’s LBO financing by around 100bps to clear the market, while ION Markets pulled a $1.7bn repricing toward the end of last week, though both had credit specific issues. 

ION is no stranger to a pulled deal, with concerns this week largely focused around governance.

The widening on Kohler meanwhile was partly chalked up to the difficulties of marketing a brand new carve out. While initial price talk of SOFR+375bps-400bps might have seemed reasonable for a B1/B credit, sources familiar with the transaction said key investor concerns around the reputation of the sponsor and the limited financial data for the carve-out had been underestimated.

The loans ended up pricing at 475bps, with sources involved saying that the deal may have benefited from pre-marketing and wider initial levels ahead of launch.

“That was in our mind, certainly a miss,” a banker on the right of the deal said.

In the secondary market, Hertz bonds dipped this week as the car rental company’s earnings call shed more light on the cost of its investment in electric vehicles, which it is now pulling back on.

Spirit Airlines said on Thursday the company is in the “early innings” of refinancing its $1.1bn of bonds backed by its loyalty program, which mature in 2025. Bondholders have hired Akin Gump to prepare for negotiations with the airline, 9fin reported on Friday.

Meanwhile, with the Super Bowl descending on Allegiant Stadium in Las Vegas on Sunday, we had a look at the surprising number of high yield credits that sponsor US stadiums — from Tropicana Field to Dunkin’ Park, home of the Hartford Yard Goats minor league baseball team.

DocuSign to lay off 6% of workforce, or about 440 jobs (CNBC)

Tech millionaires take on politicians in a fight to fix San Francisco (WSJ)

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Kansas City Chiefs owner sees private equity as option for NFL (Bloomberg)

EU agrees its first ever rules for ESG raters in sector shake-up (Reuters)

Owners consider taking Soho House private after short seller report (Financial Times)

The cutthroat world of hedge funds, from the assistant’s point of view (WSJ)

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