US LevFin Wrap — Tenneco kicks summer supply into gear and the refi machine cranks on

William Hoffman
+Bill Weisbrod
+ 1 more

10 August 2023•6 min read

Someone didn’t get the memo that there is supposed to be a summer market slowdown.

Between all the repricings and refi deals, hardly any of it is new supply, but the market is nonetheless inundated with deals during what is historically one of the slowest months of the year.

Through two weeks of August, monthly HY bond issuance has already surpassed all of July’s volume at over $6bn, according to data from JP Morgan. Loan pricings take longer and lag behind last month’s volume total currently, but even if just half of the nearly $24bn of loans in the market do price as planned, then loan volume will also outpace July.

“It’s a busier August than we expected,” one portfolio manager said. “The bankers haven’t made much money this year, so while the market is open and they can find things to print, they’ll do it.”

The BofA and Citi-led bank group that funded Apollo’s buyout of auto parts maker Tenneco is seizing the moment. The deal is back in the market after banks shelved that syndication nine months ago.

Tenneco’s earnings have improved, cost savings are underway, and Apollo even agreed to lender-friendly doc changes. But investors remain skeptical of how a possible divestiture of the company’s aftermarket parts business will impact the business long term. Sources told us this week it’s not a matter of if the spin-out will happen, but rather when.

Despite that concern, investors are drawn to the healthy 11% yield talk on Tenneco’s bonds and SOFR+500bps price talk on the loans — good enough for over 10% yield at current three-month floating rate averages. The deal’s commitment deadline was moved up to Monday, 14 August and several buyside and sell-side sources both said the order book was progressing well as of Wednesday.

“We don’t have a lot of new money deals, which is why things like Tenneco get more attention,” the portfolio manager said. “What else can you buy with that kind of yield?”

Summer-slammed

On a smaller scale than Tenneco, Barnes Group also provided some new loan supply for its acquisition of aircraft engine component maker MB Aerospace.

Barnes is looking to stimulate growth through the acquisition and should benefit from strong demand for new planes, sources noted.

The loan’s margin tightened through price progression reflecting investor optimism for the tie-up, the company’s double-B ratings, and the buy-side’s appetite for new supply. Price talk for the $650m TLB due 2030 tightened to S+300bps from S+350bps.

“A lot of the new issue deals in the market lately are pricing pretty well, so there’s little room for appreciation right now,” one analyst said.

In new high yield paper, cloud-based communications firm RingCentral came to market with a $400m seven-year unsecured bond. The first-time issuer is looking to pay down busted convertible notes coming due in 2025 and 2026 amid a falling share price and C-suite upheaval. Check out our Legal QuickTake and Credit QuickTake on that deal.

More new supply could be on the way. NASDAQ-listed shipping logistics company Forward Air announced a combination with supply chain management company Omni Logistics, which is privately owned by Ridgemont Equity Partners and EVE Partners.

Morgan Stanley and Citi provided financial commitments of $1.85bn of term and bridge loans that could get publicly syndicated before the deal officially closes in the second half of the year.

And Goldman Sachs is leading a group of banks that provided committed financing for CD&R’s $2.3bn take private of packaging and print products distributor Veritiv, which was announced on 7 August.

Relying on refis

Those new supply deals are more the exception in this market. It’s mostly been a hot refi summer in levfin.

Aerospace components manufacturer TransDigm notably priced $1.45bn SSNs due 2030 with a 6.875% coupon — which is among the lowest cost of financing for single-B rated secured debt this year, according to a 9fin screener. Proceeds were used to refi higher-cost subordinated debt that was set to mature in 2026.

Advertising firm Clear Channel Outdoor similarly priced a refi deal in the bond market while Light & Wonder International (formerly known as Scientific Games) priced unsecured notes in a refi trade.

Offshore driller Valaris successfully added onto its previous second lien bond deal that priced back in March. But proceeds were not used to refi debt, instead, the company is funding purchase options for two new drillships, leading to a downgrade from Fitch to B+ from BB-.

Commercial real estate services firm Cushman & Wakefield priced a $1bn TLB due 2030 at S+400bps (50bps floor) and a 97.5 OID, along with a $400m SSN due 2031 at 8.875% at a 99.293 OID, also to back a refi.

Elsewhere in the loan market, Osaic, the wealth management firm formerly known as Advisor Group, seized on a “perfect storm” of tailwinds to extend its term loan and raise incremental debt. Indeed, the company’s earnings are on an upswing but some fear it won’t last.

Similarly, records and information management service provider Access CIG is shopping a refi deal on a record of steady earnings despite some questions about the long-term trajectory of the business. A juicy S+500bps margin plus an OID of 97-97.5 may assuage some of those concerns as we wrote this week.

Media matters

One of the largest high yield issuers Dish Network reported second-quarter earnings that showed continued subscriber declines in its cable business.

But that did little to dampen the rally in the bonds on news that the company is merging with CEO Charlie Ergen’s other company EchoStar. The acquisition gives Dish’s fledgling mobile network business a foothold in satellite operations that could expand coverage.

Dish has a lot of debt coming due in the coming years. It is expected to tap the bond market again later this year — and probably every year for the foreseeable future.

Elsewhere in the media landscape, Paramount (formerly Viacom CBS) is selling publisher Simon & Schuster to KKR after regulators squashed Penguin Random House’s plans to purchase its longtime rival.

As first reported by 9fin, Jefferies is leading the debt commitment and plans to syndicate it to institutional investors. The deal is a win for banks in their ongoing competition with direct lenders.

Speaking of private credit, JP Morgan is targeting $1bn for a private credit secondaries fund. For more on that situation and all things private credit be sure to reach this week’s Unicrunch.

And while it’s still available to all 9fin subscribers, be sure to check out our CLO coverage. This week we did a Q&A with Invesco about tricky times for CLOs, covered resets from Blue Owl and Ares as well as five ways to beat the CLO reinvestment crunch.

Before you get lathered in sunscreen (just me?), be sure to read our breakdown of the gender gap in private credit. Like the rest of the financial world, there’s a problem.