US LevFin Wrap — Tenneco’s a go-go, lift-off for Maxim Crane, CHG lands divi deal

Emily Fasold
+William Hoffman
+ 1 more

17 August 2023•5 min read

Halfway through the month, it’s finally starting to feel like August.

For those of us not on vacation this week, outbound calls are going straight to voicemail, out-of-the-office emails are flooding our inboxes, and after a whirlwind couple of weeks, it appears that the annual primary market slowdown is finally upon us.

Of course, that isn’t to say that nothing is going on. Volume hasn’t quite ground to a halt, but most of the deals that launched this week were smaller and simpler than what we’ve grown accustomed to over the last month or so, and sources say the slower pace is expected to bleed into next week.

“Things are starting to wind down and there isn’t much in the pipeline for next week either,” one CLO manager said. “There might be a couple of small, $100m-$200m add-ons that will get done in three days, but not much else.”

Enjoy it while you can, because sources said the post-Labor Day pipeline is filling up with both debt refinancings and large LBO deals from borrowers like Syneos Health and Simon & Schuster, which should provide investors with much-desired new paper.

“It sounds like September will be relatively busy, with a better mix of LBOs and new money instead of just refis,” the same source said. “But this could be it until after Labor Day.”

In private credit meanwhile, a group of direct lenders including Oak Hill, Blue Owl and HPS were reported to (finally) be providing a record-breaking $4.8bn unitranche loan to back Vista Equity Partners’ refinancing of fintech firm Finastra earlier this week.

Finding a level

This week was big for the BofA and Citi-led bank group that funded Apollo’s acquisition of Tenneco last year — on Tuesday, they managed to offload some of the $5.4bn in hung debt.

Buysiders had been hotly anticipating the deal, which launched early last week, nearly nine months after the initial syndication attempt was shelved. Underwriters made several key changes to the deal to boost interest, which we outlined earlier this month.

While Tenneco’s earnings have improved since last year, prospective lenders were still wary about the negative effects that a potential carve-out of its aftermarket parts business could have in the long term.

The loan facility was downsized to $1.243m from $1.397m and priced at the wide end of talk at SOFR+CSA+500bps with a 50bps floor and an 85 OID.

Investors showed demand for the 8% senior secured note offering, which was upsized to $1.9bn, and priced with an 85 OID on Tuesday. However, the notes have since traded off to around 81 in the secondary, which one trader said was down to tight pricing relative to the loan, and full allocations.

Healthcare wins (and losses)

Moving onto deals that launched this week, most were smaller add-ons and relatively straightforward debt repricings, but healthcare staffing firm CHG Healthcare's $530m term loan to refinance debt and pay a dividend to its sponsor was one that stood out.

Despite an expected slowdown in temporary healthcare staffing as hospitals look to cut costs, CHG managed to upsize the deal to $580m from $530m, and priced at the tight end of its revised talk of SOFR+375bps-400bps with 50bps floor and a 99 OID.

Dental support organization Heartland Dental was another winner in the healthcare sector this week. Like CHG, the KKR and Ontario Teachers Pension Plan-backed company also launched an add-on term loan deal, which was upsized to $350m from $150m and priced at the tight end of talk.

The deal was marketed on heavily adjusted EBITDA numbers but sailed through thanks in part to strong second quarter earnings, according to one source following the deal.

Healthcare credits may have seen success in the primary this week, and they tend to be popular with private credit too. But as we highlighted in this report, recent BDC earnings have revealed that the sector’s laundry list of problems are starting to take a toll on direct lenders.

Also notable from this week was Maxim Crane Works’ $500m second lien note offering to refinance its 2024 maturity. The lifting equipment rental provider posted strong Q2 earnings, but buysiders we spoke to expressed concerns around its thin cash flow generation. The deal priced yesterday at the wide end of guidance, with a 12% yield.

It's a gamble

Elsewhere, historical horse race betting company and casino operator ECL Entertainment showed there is decent demand for in-person gaming credits even amid a wave of mobile sports-betting legalization in the US.

The Las Vegas-based company, which counts an algorithm-driven way to bet on already completed races as its main product, priced its $380m term loan refinancing at the tight end of talk earlier this week.

But, as recent trading activity on Penn Entertainment’s stock and debt shows, lenders aren’t completely sold on the growth stories of all gaming credits.

The casino operator announced a $2bn marketing partnership with ESPN earlier this month, and quotes on its 4.125% senior notes due 2029 and its 5.625% senior notes due 2027 moved up slightly on the news.

However, quotes on both have since moved down several points to 80.5 and 93, from their respective peaks of 84 and 95 last week. For a deeper dive into the company and how the ESPN deal is being received by the market, check out our latest Cloud 9fin podcast episode here.