US LevFin Wrap — Scary time for single-B credits, Sirius set to lever up, Life insurance policies are to die for

Sasha Padbidri
+Bill Weisbrod

26 October 2023•4 min read

Spooky season is once again upon the leveraged finance market — thanks in part to 10-year Treasury yields near 5 percent — making debt raises a bit more daunting, particularly for lower-rated issuers.

"The refinancing window is kind of closed,” a buysider said. “If you needed to do a refinancing you should have done it 3 months ago. It’s much more expensive now.”

For example, facilities management company BGIS withdrew a $916m refi loan deal on Monday. And gas station operator FR Refuel had to downsize its TLB add on due 2028 by $100m and widen the OID to get it across the finish line.

In high yield, aircraft lessor Avolon’s $1.95bn of senior PIK toggle note due 2028 was supposed to price last week but is languishing. That has sparked volatility in the existing bonds of its majority owner Global Aircraft Leasing Company, which are supposed to be paid off by the new issuance.

Some investors speaking with 9fin at the ABS East conference in Miami this week told us they’re beginning to wrap up participation in this year’s deals after a busy September. (9fin clients can check out our conference coverage here and here)

“We are now only looking at deals opportunistically,” said a portfolio manager. “Some lower-rated deals may or may not get done.”

To that point, not every single-B issuer is struggling to raise debt.

In an example of a refinancing deal from a well-liked but lower rated issuer that did get done, B3/B CFR-rated insurance broker Acrisure’s $1bn term loan B due 2030 priced at the tight end of guidance earlier this week.

And B3/B-rated rigging manufacturer Kito Crosby’s $205m term loan due 2026 is also being viewed positively by investors. As we reported, the company is refinancing its second-lien loans following improved second-quarter earnings.

“This deal will get done, the combined company is crushing it with getting business,” the portfolio manager said, pointing to the successful integration of KKR-owned Crosby with Japanese peer KITO Corporation.

The jury is still out on a $500m term loan due 2030 backing commercial door and frame company Cook & Boardman’s buyout by Platinum Equity. While the company has performed well, some prospective lenders raised concern over possibly peaked earnings and exposure to the commercial real estate industry.

Euro invasion

The doom and gloom talk from investors hasn’t stopped some European companies from launching dollar deals. UK-based rigs operator Borr Drilling did a speedy placement of $1.54bn dual-tranche senior secured notes on Tuesday, while French animal health company Ceva Santé Animale made its dollar debut this week.

German software company SUSE is also raising $1.255bn of term loans due 2030, of which $727m are existing loans that are being extended.

Sirius-ly levered

Looking ahead in primary issuance, investors are eyeing satellite broadcaster Sirius XM Radio as it combines businesses with Liberty Media. While a financing package has not yet been lined up to fund the merger, investors have said that the transaction will raise Sirius XM’s leverage without any synergies, leaving the company dependent on free cash flow to pay down debt at a time when satellite radio growth may have plateaued.

The new high yield supply would be welcome though, because that market might shrink materially thanks to more than 20 companies nearing investment grade status over the next few years — more on that here.

Investors also told 9fin that they are modeling out what the potential broad adoption of diabetes drugs Ozempic and Wegovy could mean for leveraged credits. 9fin clients can click here to get the skinny on how this could affect everything from healthcare to retail clothing brands, but don’t let that stop you from feasting on Halloween candy this weekend.

If your tastes lean slightly morbid, check out this week’s Cloud 9fin podcast, where we dive into the trend of private credit firms buying life insurance policies. Tune in to learn everything you need to know about the death capital markets!