US LevFin Wrap — Tenneco, Nielsen and Dish take the plunge as market opens up

Sasha Padbidri
+Bill Weisbrod
+ 1 more

4 November 2022•5 min read

Could it be? Is the market really back open? After months of drought, the steady trickle of deals in the past few days has felt like a deluge. No guarantees for what next week has in store, though.

A handful of borrowers took advantage of a brief credit rally early in the week to launch transactions. As effective yields dropped below 9% for the first time in more than a month, issuers including such as Tenneco, Ford, and Nielsen took the plunge.

Monday’s trick-or-treaters didn’t scare off borrowers: more supply was announced in the high yield bond market in just four days than deal volume priced for all of October.

The rally tapered off on Wednesday, when the Fed raised short-term borrowing rates by another 75bp to 3.75%-4%, the highest level since January 2008. Investors were hoping for signs of a pause, but it looks like more hikes are coming next year.

The possibility that the pace of hiking might slow theoretically provides some relief, but effective yields shot back 50bp higher to 9.22% by Thursday. "Everything was strong late last week and early this week, but the Fed put a stop to that,” said a high yield trader.

Borrowers with near-term funding needs — like Dish Network — are biting the bullet to issue debt now, rather than waiting around as rates go even higher. Borrowers that have more time may be looking towards the second half of next year.

“Borrowers that need to come in the next six months, might want to issue now because rates look to be heading higher,” said a portfolio manager. “But if you can wait until the back half of 2023, we’re expecting a recession next year, and by then rates could be lower.”

The big ones

At long last, Tenneco and Nielsen are having their day in the primary market.

But just because the market feels more open, doesn’t mean these LBO financings will be an easy sell. There are many questions about Tenneco’s future under Apollo’s stewardship (more on that here), and plenty about Nielsen too (read our full piece here).

Dish, meanwhile, is not getting bought out by private equity — but its does have a big funding need as its attempts to transform itself from a pay-TV subscription service to a mobile internet network provider.

Just as we predicted earlier this year, Dish is tapping its cache of valuable spectrum as collateral for its latest bond offering, a $2bn deal led by Deutsche Bank.

The deal could serve as a template for more deals to come from the company, but some investors are skeptical of the value of the spectrum — check out our full piece here (and check out our Credit and Legals reports here, if you’re so inclined. If you are not a client but would like to read our Credit and Legal QuickTakes on Dish please complete your details here).

In our reporting, we’ve focused on the big questions: can Dish meet government-imposed deadlines for its wireless build-out, can it compete in an industry dominated by giant companies like AT&T, Verizon and T-Mobile? And how valuable is the spectrum they’re using as collateral?

There were fewer questions around Ford Motor Credit, which opportunistically priced a quick drive-by (pun intended) on Tuesday. The $1.5bn 7.35% SUNs due 2027 priced at par via BNP Paribas, down from initial price talk in the 7.625% area.

At that yield, sources pointed out that Ford was pricing tight of comparable investment grade auto credits — a sign of the immense demand for high-quality leveraged paper right now.

Elsewhere, Nomad Foods took advantage of the market opening to address a 2024 maturity on its previous USD-denominated term loan.

Lenders shrugged off a Russia-exposed supply chain and inflation concerns, as the UK-based frozen foods purveyor tightened pricing on its new seven-year TLB from SOFR + 425 (50bps) floor to S+375bps (50bps floor) with a 96 OID - at the higher end of initial talk.

However, Nomad did tweak the structure towards the end of syndication. It downsized the USD loan to $700m from $825m, making up the difference with a privately placed seven-year €130m TLB, priced at E + 350bps with a 97.5 OID.

The other ones

Elsewhere, a bank group led by UBS managed to syndicate the $330m term loan it recently funded to back The Crosby Group’s acquisition of KITO Corporation.

The banks lured outside investors with a hefty OID of 88; in conjunction with the acquistion, KKR injected at least $100m of fresh equity into Crosby.

Insurance broker HUB International did a quick run through the market via Morgan Stanley on Monday, launching and pricing an $850m incremental TLB to fund acquisitions, in a one-day syndication. Extensive premarketing work must have gone into that one.

And chemical developer ANGUS issued a $125m add-on term loan, also to fund M&A. Arranged by JPMorgan, the deal was talked at S+475bps with an OID in the 92-93 range, according to sources. Pro forma leverage is around 8x, sources told 9fin.

Meanwhile, Blackstone Mortgage Trust found enough demand for a JPMorgan-led TLB add on, which it upsized to $325m from $250m.

In other news, publishing group McClatchy upsized its PIK toggle note due 2027, to fund a $115m payment to shareholders, according to Moody’s. The company exited Chapter 11 bankruptcy two years ago, with Chatham Asset Management as its majority owner.