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William Hoffman

Sasha Padbidri

Bill Weisbrod

There is no end to the think pieces, reporting and analysis this week on the mini (for now, at least) banking crisis we find ourselves in. We have a few takes of our own, including a discussion in this week’s Cloud 9fin podcast).

While the details of the collapse of Silicon Valley Bank, the propping up of First Republic Bank and the issues at Credit Suisse are fascinating, we’re most concerned with its impact on leveraged finance, where market participants are tackling all kinds of challenges.

“It’s just a lot of headwinds: inflation, the job market, the Fed, Treasury rates and now this regional bank thing,” one buysider said. “I think a lot of people are stepping back and just watching at this point.”

And well they might. It feels like everything is happening, everywhere, all at once.

Amid the unease, two loan borrowers pulled deals this week, and more could be on the chopping block, as we’ll detail below. Some issuers are finding demand but may no longer comfortable pricing, especially if they’re looking more opportunistically.

Even so, there’s still a reasonably active loan pipeline. Many of these deals are small amend-and-extend deals or add-ons, but there was also a fairly sizeable merger financing announced amid all this: Tricor-Vistra, which we’ll talk about more in a second.

“I wouldn't make too much of a big deal on a lot of these pulled deals,” said a loan portfolio manager. “The market is soft and we just had a pretty big surprise event, so it should come as little shock that borrowers want to shelve opportunistic refis.”

Despite volatility and the rising cost of borrowing, some management teams might still want to lock in funding to take uncertainty off the table.

There’s also a ton of cash sitting in private credit funds that probably looks a lot more compelling to borrowers versus the broadly syndicated market than it did a week ago.

“We do believe private credit is set to take a marginal share of what would have otherwise been syndicated to investors,” wrote JP Morgan analysts on Friday (incidentally, the bank has set aside some $10bn to support its push into direct lending).

“Given heightened uncertainty surrounding 2024’s macro landscape, we believe many issuers will be reluctant to wait to address 2025’s maturities,” the analysts added.

For more on private credit check out our video interview with Michael Patterson, head of HPS’s direct lending platform, which includes discussion on Cotiviti, the PIK toggle trend, and the SVB collapse.

The two issuers to pull loan deals this week were fund manager Russell Investments (Ba3/BB-), which withdrew its $1.16bn five-year TLB amend-and-extend proposal, and medical equipment management company Agiliti (B1/B+), which pulled a $1.075bn seven-year TLB refinancing.

Russell has had some issues with declining AUM, which investors had previously flagged. But still, if deals for low double-B and high single-B credits are getting pulled, other loan offerings from lower-rated credits may also face pushback, sources noted.

Legal compliance software company Mitratech (B3/B-) is one investors said could struggle in this environment. The company is out with a $225m TLB due 2028 to fund two acquisitions with commitments due 22 March.

Likewise, US Silica (B2/B) is out with a $950m TLB due 2030 that will refinance its existing cap structure. Commitments were due Thursday but so far there has been no pricing update.

The company managed to reduce debt last year leading to a one-notch upgrade at S&P to B, but some investors are simply not touching cyclical names in the oil field services sector at a time of uncertainty like this.

Still, other loan deals are getting done. Educational software company Renaissance Learning priced a $1.575bn TLB due 2030 on Thursday — although it did price a day after commitments were due and at wider pricing, with an OID of 97 from 98 at talk.

Others such as chemicals company Momentive and fuel and lubricants distributor RelaDyne are out with active deals, with commitments due mid to late next week (on or after the Fed meeting on Wednesday).

"Some people might pull deals, but the deals that end up getting pulled first are the ones that weren't doing well to begin with,” a banker said. “People are going into wait-and-see mode before they do anything. People are definitely going to hide behind St Patrick's Day on Friday.”

One borrower (or more correctly, two that are becoming one) ignored the warning signs and drove right past the pulled deals to launch an M&A financing package this week: Tricor-Vistra.

On Thursday, lead left bank Goldman Sachs launched a $1.66bn equivalent TLB split across dollars and euros to fund private equity firm BPEA EQT’s merger of the two firms, both Asia-based back-office services companies which the sponsor already owns.

The combination of the two companies was announced just last week at a valuation of $6.5bn and is not expected to close until the third quarter. But some investors were stumped as to why the company and its bank would choose this timing to issue the deal.

“You figure that this deal must be a fortress if they’re confident enough to roll it out right now,” the loan PM said, possibly channeling their inner Jim Cramer. Or maybe these credits are unaffected by the contagion, like these deep-sea fish.

Tricor priced a $750m TLB last year that should give some visibility on pricing. The loan was last indicated at around 96-97, buysiders said.

“There's some confidence around that existing loan and the lender base can see visibly where it trades,” the PM said. “So maybe they just want to get it done [despite the current market volatility] and price it accordingly with some amount of premium.”

Meanwhile, the bond market is effectively on pause, as we detailed earlier this week.

Off-shore seismic data company Petroleum Geo-Services was the lone bond issuer caught in the crosshairs of this volatility, and was forced to offer high concessions to price $450m SSNs due 2027 that were announced prior to SVB’s collapse.

Books closed on Friday with the bond launched at a 13.5% coupon and 98 OID, putting it among the largest coupons ever for a SSN, according to 9fin data. That coupon was at the wide end of price talk in the 13%-13.5% range.

Highest coupons on SSNs, according to 9fin data.

The Caa1/CCC+ rated Norwegian company uses marine vessels to provide seismic data and services to off-shore drillers. It’s using the new bonds to partially refinance its $873m TLB due 2024, a move that we’ve seen several other issuers make as SOFR climbs.

There was always going to be some price discovery since the company doesn’t have a track record of bond issuance, but still, it’s quite a juicy yield.

“Higher volatility means you get paid more to take a trip,” one buysider said. “If there's another shoe to drop three months from now, we need to get paid for the risk something like that might happen.”

Before you crack into the Guinness and corned beef to celebrate St Patrick’s Day, consider reading the latest interviews in our 9Questions series.

This week we chatted with investment partner Chaney Sheffield at Canyon Partners, portfolio manager Peter Pulkkinen with Lombard Odier Investment Managers, and Michelle Handy, deputy chief investment officer at First Eagle Alternative Credit

Here’s what the collapse of Signature Bank means for NY (The City)

SVB bonds the US says will be ‘wiped out’ gain in rare session (Bloomberg)

Larry Fink’s annual letter transitions away from ESG (Axios)

Silicon Valley Bank went broke, but not because it was woke (The Verge)

Credit Suisse faces first US investor lawsuit over meltdown (Bloomberg)

European regulators criticise US ‘incompetence’ over Silicon Valley Bank collapse (FT)

WeWork reaches deal to convert $1bn of SoftBank's debt to equity (Reuters)

VW beats Tesla to the punch and unveils an affordable electric vehicle (The Verge)

US LevFin Wrap — Tricor-Vistra dives in despite banking drama, PGS breaks HY pause

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