US LevFin Wrap — SVB woes, bankers shop BetaNXT loan, what are loans even?

Sasha Padbidri
+Bill Weisbrod
+ 1 more

10 March 2023•5 min read

A good chunk of the LevFin community might’ve been at the JP Morgan high yield conference in Miami earlier this week, but back in New York, the primary pipeline machine was still fairly active — at least on the loans side.

Deals for TopGolf, Uber and Cetera were among those that cleared the market. But a pulled loan from Qlik Technologies (more on that below) showed investors are still holding the line on pricing for lower rated credits, especially after Fed Chair Jerome Powell made it clear this week that the central bank isn’t done with interest rate hikes.

“Powell’s comments confirmed our feeling that rates are going to be higher for longer, and that’s really driving concern in the loan market,” said a CLO manager. “Interest burdens and the cash cost that these companies have to pay could create more ratings downgrades.”

As the market digests Powell’s comments, the new issue market could pause over the next week or two, an analyst said.

Adding to the pain are the headlines around Silicon Valley Bank, the lifeblood of technology startups and VC firms. If you were caught up in the LevFin conference grind this week, or, as our colleague Owen Sanderson suggested, living under a rock — we condensed the SVB drama into a neat story right here, published just before regulators closed the bank to protect deposits.

Just tap it in

This week, Bank of America upsized a TLB due 2030 to $1.25bn for Topgolf that combines term debt for Topgolf Callaway and Topgolf International.

The margin of SOFR+CSA+350bps now comes with a 25bps step-down if the corporate family rating is upgraded to Ba3/BB-. The company is betting that its recent expansion will lead to free cash flow generation and aims to reach 3x net leverage in the long-term.

US Silica is marketing a $950m TLB due 2030 this week to refinance debt due 2025 (commitments are due 16 March). The company joins a growing group of energy-related credits that have been taking advantage of the commodity boom to refinance debt.

Meanwhile, some investment banks continue to try and sell hung debt from LBOs announced in 2022. Sources said that bankers are working behind the scenes to syndicate holdings in a $750m loan that funded BetaNXT’s buyout by Clearlake Capital and Motive Partners in July 2022. The bank group, led by Goldman Sachs, has been looking to offload the debt since late last year.

Goldman Sachs, which is also one of the lead banks for Citrix’s LBO financing, is also reportedly looking to sell $3.95bn of junior debt hung from that deal in the coming weeks.

Also this week, Uber returned to the market seeking a $760.6m add-on loan to the $1.75bn TLB due 2030 it raised in February. Proceeds will refinance an existing TLB due 2027.

Pushing out debt maturities could allow Uber to refinance with cheaper investment grade debt in the future. However, the company’s path to IG hinges on its ability to meet its target of $5bn EBITDA in 2024, 9fin recently reported.

Independent broker-dealer Cetera Financial Group priced its $750m TLB due 2030; sources said rising interest rates should help the company generate higher returns from investing client deposits. Another player in the financial services sector, the TA Associates-backed Russell Investments, is also in the market this week looking to raise a $1.16bn TLB amend-and-extend.

Just didn’t Qlik

But not all deals were able to get across the finish line.

On Thursday, Morgan Stanley pulled a proposed amend-and-extend transaction for Qlik Technologies. The transaction would have extended the maturity on a $1.39bn TLB by three years to April 2027. The loan was offered at S+400bps-425bps (0.5% floor) with a 99-99.5 OID.

Qlik, which is rated B3/B, boasted the largest unitranche financing at one point. In June 2016, Ares underwrote a $1.075bn unitranche loan to back the company’s buyout by Thoma Bravo. Qlik later refinanced the unitranche with a BSL loan in 2017 to cut borrowing costs.

“Pushing out B3 risk is less appetizing for CLOs. There are better options at 400bps,” said a portfolio manager who passed on the transaction.

For more insight on how CLO managers are thinking, take a look at our recent 9Questions with Wynne Comer, chief operating officer at AGL Credit Management.

Loan lawsuit

On Thursday, a federal appeals court started hearing arguments over whether syndicated bank loans should be treated as securities. The case is linked to a $1.7bn term loan issued in April 2014 for Millennium Health. Proceeds were partly used to pay a dividend to some company executives and TA Associates, its private equity owner at the time. (More detail in this article)

Millennium filed for bankruptcy in 2015. The lawsuit was filed in 2017 against JP Morgan and other arrangers of the 2014 loan by bankruptcy trustee Marc Kirschner alleging that the banks failed to inform investors about a federal probe into the company’s billing practices. A judge dismissed the case in 2020.

Should the appeals court overturn that ruling, it could impact the way sponsors and companies go about raising cash — and perhaps even push borrowers towards private credit for financing.

Speaking of private credit, 9fin caught up this week with Ranesh Ramanathan, co-leader of Akin Gump’s special situations and private credit practice, to get the skinny on new opportunities in the $1trn asset class. Check it out here.