US LevFin Wrap — Rally brings Citrix, aerospace and car rental companies off the sidelines

David Bell
+Bill Weisbrod
+ 1 more

17 November 2023•5 min read

It’s not surprising to see a burst of primary supply after a dramatic drop in rates and two weeks of near-record fund inflows, but we’d guess only a few folks had a Citrix dividend recap in their 2023 bingo card.

The software company, now combined with TIBCO and renamed Cloud Software Group, raised $1bn in the loan market this week to repay expensive preferred equity that backed its buyout by Elliott Investment Management and Vista Equity Partners in 2022.

The optics of the distribution might have sparked debate after the company’s hung LBO financing caused so many headaches last year, but it made sense from the sponsors’ perspective since it simplified the capital structure and reduced cost of capital. Sources said paying down that preferred tranche, one way or another, was also well-telegraphed.

“It’s not a terrible thing,” said one CLO manager looking at the Citrix deal. “The sponsors always said they would look to pay down the expensive preferred notes.”

Citrix was one of several companies taking advantage of a recent flood of cash into riskier corporate credit, before the Thanksgiving break and the typical primary market slowdown that follows. For a full list of pricing activity, see our bond and loan screeners. Here are a few examples:

TransDigm was able to accelerate a $2bn financing in the bond and loan market, as well as tighten the pricing on both tranches. The aerospace parts manufacturer has raised over $10bn in 2023, making it the second biggest levfin issuer of the year so far. Our story on the deal earlier this week laid out why investors still have appetite despite the heavy supply
American Airlines entered the fray with a $2.1bn debt raise to refi 2025 debt. The industry is tackling rising fuel and labor costs, sluggish domestic demand and issues with Pratt & Whitney engines, which Spirit Airlines and Hawaiian Airlines referred to in earnings commentary this week. American, however, is benefitting from international travel demand, eyeing rating upgrades, and was able to upsize the deal from $1.5bn
Hertz was able close a $500m loan deal that was upsized by $100m and priced at the tight end of talk. The deal, which we previewed last week, was quickly followed by fellow rental company Avis, which priced a $500m 8% SUN due 2031
Energy companies were well represented with Helix Energy Solutions and Nabors Industries both pricing new unsecured bond deals while Buckeye Partners is expected to price a $1bn TLB this week after tightening pricing
Bankers are still shopping $1.3bn of debt to back Veritiv’s take-private by CD&R. That has been a tougher sell, with lenders cautious of fading tailwinds in the distribution industry. Jefferies and RBC have widened price talk, adjusted the credit agreement and shifted $100m of the debt from the loan to the bond, but expects to allocate the deal this afternoon

High yield funds have pulled in more than $10bn over the past two weeks — the largest on record for the asset class aside from a two-week stretch in June 2020, according to JP Morgan. Loan retail fund flows have also stabilized, while CLO appetite has been robust, according to sources.

For more commentary on CLO market conditions, see our 9Questions interview with Adrienne Butler, co-head of Barings US high yield and head of US CLO funds.

“The money is coming in wickedly fast,” said one high yield portfolio manager. “This is a lot of what has driven the rally, so I can understand why deals are getting done.”

However, investors are mindful of how quickly things can turn. It’s unclear how much of the recent money coming into the asset class is driven by tactical hedge or macro funds looking to allocate to high yield, who could change their views rapidly.

“When you get a situation like this where everything gaps higher like it did in the past two weeks, and companies are coming to market,” said the HY PM, “it’s a bit of a sucker’s rally.”

Going up in smoke

Among private earnings filers this week, Clearlake’s building material distributor PrimeSource posted a slight drop in EBITDA that had little impact on secondary levels, though investors remain concerned about the broader slowdown in construction and remodeling activity.

A spate of defaults last month — including co-working provider WeWork, radiology imaging company Akumin and medical helicopter company Air Methods — is keeping distress and restructuring activity front of mind.

This week, Enviva bonds staged something of a recovery after dropping into the 30s last week, on the back of reported heavy losses, a going concern warning and the company’s disclosure that it has hired a roster of advisors. For its part, a group of bondholders are working with Evercore and Davis Polk to negotiate with the struggling wood pellet producer, which faces liquidity pressures from rising costs as well as some problematic customer contracts.

Advisors for an ad-hoc group of lenders to Global Medical signed non-disclosure agreements to hold talks with the company about a potential extension of over $4bn of debt maturing in 2025.

The state of Hawaii, meanwhile, has hired advisers to help tackle the financial impact of wildfires in Maui this August. Hawaiian Electric has been working with Guggenheim to assess its options, while a group of Hawaiian Electric Industries private placement noteholders organized with Perella Weinberg.