US LevFin Wrap — Return of the repricing, Varsity Brands A&E graduates, bond bias prevails

Sasha Padbidri
+William Hoffman
+ 1 more

10 February 2023•5 min read

The leveraged loan market saw its first loan repricing deal in more than a year this week — yet another sign of how far the market has rallied in 2023.

Pipeline operator ArcLight GCX launched a repricing of its $615m term loan B on Wednesday, attempting to shave 25bps from its margin. Commitments are due 14 February.

Sources indicated to 9fin earlier this week that other double-B rated repricings could follow.

“ArcLight GCX is a 2022 vintage deal, and if the market remains strong you’ll begin to see a lot of those deals reprice, particularly the ones that got priced [last year] when spreads were wider than where they are at right now,” said a buysider.

That said, a sell-side source noted that only a small proportion of the loan index currently trades above par, so the opportunity set remains relatively small (at least for now).

Winning

Still, the repricing is another sign of strong investor demand.

Insurance distributor AmWINS provided another example by accelerating, upsizing and tightening the pricing on a $850m term loan to fund a dividend to shareholders. It’s one of a string of similar deals in recent weeks.

Though they’re typically a sign of a hot credit market, investors have been willing to support debt-financed dividends for companies with strong credit stories — especially when there’s plenty of cash to put to work.

AmWINS’ strong quarterly earnings helped the dividend deal race through the primary. It’s a familiar strategy for the company after completing similar financings in 2020, 2019 and 2018 — all to fund shareholder distributions.

Varsity letters

Bain Capital-backed athletic uniform and equipment distributor Varsity Brands successfully amended and extended the maturity of its $1.3bn TLB by two years to December 2026.

Though ultimately the deal generated sufficient demand, some lenders grumbled about the compensation on offer for the extension. The company is dealing with federal antitrust lawsuits, which some lenders said could cap growth.

Beverly Hills, California-based United Talent Agency also shopped a $250m non-fungible TLB this week to pay down existing revolving credit borrowings and add cash to the balance sheet.

Although the company’s continued revenue and EBITDA growth is expected to decrease leverage to below the mid-5x range, sources monitoring the credit said that a potential strike by the Writers Guild of America could impact the company’s performance.

“There’s a possibility for a strike in Hollywood so we have an eye on that and it’s in both sides’ interest to work something out,” a second buysider said.

Atlas obscura

Meanwhile, underwriters printed $1.65bn in the high yield bond and loan markets on Thursday for cargo airline Atlas Air Worldwide’s buyout by sponsors Apollo, JF Lehman and Hill City Capital.

As we reported earlier this week, some investors thought the pricing on the debt was appealing, as well as the company’s consistent financial performance. You can also see our Credit QuickTake here and Bond Legal QuickTake here for more coverage on the transaction.

The pricing on the debt also highlighted how, at current levels, it has become cheaper to raise funds in the bond market versus floating rate loans.

While there are several factors at play here — including borrowers’ aversion to rising rates and tepid CLO creation — but a major influence is the inversion in SOFR and Treasury rates.

This has encouraged several companies recently to issue financing packages that favor bonds over loans. In some cases, issuers have substantially reduced the floating rate portion of their capital structure.

Deals this week from insurer Alliant, chemicals company INEOS (read 9fin’s QuickTake on that deal here) and aerospace company TransDigm all play into that trend, to varying degrees.

“As it stands right now, if you price a loan, you're going to be paying a much higher SOFR rate than if you were pricing a bond off a seven-year Treasury,” one portfolio manager said.

Last-minute shopping

Grocery store chain Albertsons priced a 6.75% $750m 2028 SUN (rated Ba3/BB) to pay off its $750m 3.5% 2023 SUN, which matures next week.

The refinancing came as the company works through a planned merger with Kroger, which Albertsons does not expect to close until early 2024.

The merger has faced obstacles, including a legal challenge by the Washington Attorney General against Albertsons' $3.92bn special dividend payout to its private equity owners, and a consumer antitrust lawsuit.

On an investor call, lenders sounded cautious about the longer-term prospects for Albertsons if the merger does not go through — the retail environment is expected to become more competitive as consumers adapt to price increases.

Also this week, cruise line operator Royal Caribbean priced $700m of 2030 senior guaranteed notes in a drive-by syndication on Wednesday.

Buoyed by recent rally in the credit markets, the company’s latest transaction will take out a backstop facility that would have expired later this year.

Finally: for some hot takes on pressure points in the private credit space, have a look at our 9Questions interview with Michael Haynes, the co-head of private credit at Beach Point Capital Management.