US LevFin Wrap — Wall Street hits Hollywood, Enviva equity burns down, Aventiv lenders try self-care

Sasha Padbidri
+William Hoffman
+ 1 more

4 May 2023•6 min read

There was a coastal reversal this week, with Hollywood’s glitterati traveling to NYC for the Met Gala and most of Wall Street in LA for the Milken Conference.

The temptation to cover ourselves in silver body paint or don a cat outfit was strong, but we decided to post up at the Beverly Hilton instead. Inside the conference, private credit, distressed commercial real estate distress and AI technology were the central themes.

And even as bankers and investors bumped shoulders with Ashton Kutcher, Snoop Dogg and Diana Ross — and, elsewhere in the city movie, TV writers began their long-awaited strike for higher wages — deals continued to fly off the shelves.

“Who the f**k run the streaming industry? Are you in here?” (via Milken)

New bonds from airplane leasing company Avolon and private jet operator VistaJet seemed to fly through the market. Student loan company Navient took its time with a multi-day syndication, hospital services company Tenet Healthcare privately placed new SUNs, and Heartland Dental upsized its bond offering.

Meanwhile, the loan market is resurgent. Blackstone’s carve-out of Emerson Electric’s climate technologies business (rebranded as Copeland) was initially backstopped by private credit but then pivoted to the BSL market to pick up some savings.

As we reported, those savings were partly due to the recent rally in credit, but also reflected the fact that the private bridge hadn’t yet been funded — so Blackstone didn’t take any OID hit. Our credit team did their own deep dive, as did our legal analysts (on both the bonds and the loan). If you are not a client but would like to request a copy of our QuickTakes, please complete your details here.

Two interesting deals we’re covering, both backed by Platinum Equity: a recap for correctional communications company Aventiv Technologies, complete with new equity and a slight whiff of self-help, and an LBO bridge take-out for high-temperature ceramics maker Calderys. If you are not a client, you can request our Credit and Legal QuickTakes here.

We also covered an upsized near-term refinancing to help Life Time Fitness chase more gainz, and elsewhere in the realm of exercise (does golf count…?) club operator Arcis Golf is in the loan market to fund some acquisitions.

“The market has definitely picked up and become more active,” said a capital markets banker. “Demand begets supply, and the market has been starved of new issue product for a long time.”

Ready, spready, go

Starved as they may be, some investors are still waiting on the sidelines. Regional banking woes and expectations of a recession (although the latest employment figures were pretty hot) continue to dangle the prospect of higher spreads and yields at some point in the future.

Some buysiders noted 9% average effective yields would be the magic number to get them to use some of that dry powder but average yields still sit below that level at around 8.3%, according to ICE BofA data.

As for average high yield spreads, ICE BofA data shows they have moved higher, to 495bps from 445bps at the start of this week. Perhaps that increase will get investors more interested after a month of lower levels.

“Spread levels at mid 400bps for HY doesn’t protect you much from a downside scenario,” said Timothy Crawmer, global credit strategist at Payden & Rygel.

“I don’t think it’s pricing in a severe recession by any means, and that’s not our base case. But I do think we will have a slowdown and there’s some potential for it to be worse than what is priced in.”

Indeed, with base rates so high, some might say investors are being paid pretty handsomely to wait things out.

“They're earning money on cash,” said Mike Gitlin, head of fixed income for Capital Group. “When you have that much cash on the sidelines and that much pessimism built into the system, you can tell why markets are somewhat resilient right now.”

Want some real nice spread? Check out Enviva’s bonds, now yielding nearly 20%. A big chunk of the wood pellet producer’s equity cushion went up in smoke this week after management announced it was eliminating its dividend — as we suggested it might a few weeks ago.

Werk it

Still, judging by the number of deals in the market this week, there are plenty of investors who want to put their cash to work. That’s especially true in the loan market, where the CLO machine is starting to whir again.

“There’s a lot of loan buyers out there ramping CLOs or that have just priced them,” one CLO manager said. “We’ve seen steady outflows from retail funds, so I think CLOs are really driving it right now.”

We’re hearing of some chunky LBO financings on the horizon, which are likely to go fully syndicated as opposed to private credit. Much further down the line, sources gave us the latest on the timeline for a potential Twitter debt syndication.

Get him on the roadshow (via Joe Rogan Experience/YouTube)

BSL is back in vogue, but as Milken attendees noted, direct lending is still extremely popular. That’s not just rhetoric: as our private credit team reported earlier this week, a recent investor survey indicated that many LPs want to increase their allocations to the market even further.

Indeed, with the White House looking to tighten regulation of regional banks, private equity and credit firms could see more companies turning to them for cash, much like how Dodd-Frank rules pushed many companies to borrow from regional banks in years gone by.

“We should be cautious about the way the rules evolve, and how that incentivizes companies on where to access financing,” said Jeff Meli, head of research at Barclays, during a panel discussion at Milken.

“There are increasingly robust alternatives to the public markets that are out there, and one that's been growing quite rapidly in the fixed income space is private credit.”

Two earnings stories to round out this week’s wrap: some themes to watch out for as BDC earnings offer a glimpse into private credit markets, and a big drop in EBITDA at Sotheby’s as the auction house comes off the NFT high of 2021.