US LevFin Wrap — Back to business as Calderys prints holdco PIK toggle and IntraFi lines up another dividend

David Bell
+Nicolle Liu
+ 1 more

12 July 2024•6 min read

$3bn printed in high yield primary across five deals
HY market rallies on CPI print, loan market softens a little on rate cut prospects
Platinum taps into risk appetite with rare PIK toggle at double-digit yield

LevFin markets warmed back up this week with a holdco PIK toggle dividend deal from Platinum Equity-backed industrial company Calderys injecting some spice into the primary market.

The company, which specializes in thermal protection for industrial equipment, was merged by Platinum with HarbisonWalker International in early 2023. On Thursday it printed a $300m senior holdco PIK toggle note due 2028 with an 11.75% cash coupon (12.5% PIK) at a 98 OID to pay a €187m shareholder distribution and repay an intercompany loan.

This kind of dividend deal wasn’t to everyone’s tastes — “12% PIK toggle holdco…what could go wrong?”, said one HY investor. But clearly other buyers were interested in the yield, as lead left BofA printed the Caa1/CCC+ rated notes 25bps through price talk. Check out our Credit Quick Take on the deal for more context.

“It’s good to see stuff like [Calderys] getting done,” said a syndicate banker away from the deal. “It shows the risk sentiment in the market for deploying cash. We’re rebuilding the calendar and with this week’s encouraging CPI print it’s going to be a dash for the next 4-5 weeks before Labor Day.”

CPI print makes waves

High yield bond prices were up 0.29 points on Thursday, the biggest rally in the past 19 sessions, according to JP Morgan analysts on Friday. Average HY yields of 7.85% are now the lowest since the end of March, they said.

Average loan prices meanwhile dropped a couple cents to $96.07 and yields dropped 10bps to 8.52%, the lowest since September 2022, as inflation data boosted the case for rate cuts.

High yield spreads may be only a few basis points above the YTD tight but that is being driven by broader dynamics and may be justified, said George Bory, chief investment strategist at Allspring, in an interview with 9fin.

“Inflation is not a universal bad. It's actually a strong positive for companies that are heavily indebted, that have a lot of fixed rate debt on their balance sheet,” he said. “Now, they will lose that advantage as they move through time, but assuming they're keeping pace with the broader economic backdrop, they're going to be in good shape.”

Elsewhere in the primary, Vodafone Spain printed €3.4bn equivalent in a four-tranche package of euro and dollar bonds and loans to fund its acquisition by Zegona, a listed acquisition shell (see full structure and pricing details here). Lenders were able to get tighter docs in place, after raising concerns about value leakage.

Cinemark printed a $500m SUN due 2032 at 7% to fund a tender offer for its 2026 debt, in what was largely seen as a pricing exercise. The bonds were printed at par and are now trading around 101.

The movie theater operator expects earnings to be pressured this year as a result of the impact of last year’s Hollywood strikes, which has pushed movie releases toward the back end of 2024 and into 2025.

More dividends

Blackstone’s bank deposit infrastructure company IntraFi added more dividend financing to the pipeline this week with a $2.067bn TLB due 2031.

It’s the company’s third dividend recap since last December. Investors generally said they like the business, but were wary of increasing leverage, hence the 400bps spread being offered. Commitments are due 17 July.

“We’re just not that comfortable taking the regulatory risk,” said one investor. “It’s a business that relies solely on the FDIC policy and there’s always uncertainty about when that policy might change.”

Investors are also looking into B3 rated enterprise software company Cloudera, which is looking to fund a $561m dividend to sponsor CD&R with debt and cash on hand. The company is offering a $420m add-on to its S+CSA+375bps 2028 TLB with price talk at 99.5. Commitments are due 15 July. Moody’s affirmed its B3 corporate rating and B2 senior secured rating with stable outlook.

Lenders are trying to figure out if the dividend is justified based on performance, but expect to see a lot of similar deals from companies acquired in 2021 where sponsors will struggle to achieve the same multiples they paid for them.

Going both ways

Broadly, sponsors are finding good opportunities across both BSL and private credit for their portfolio companies, and there’s plenty of two-way traffic.

Madison Dearborn-backed HVAC company Air Control Concepts for example is making its debut in the BSL market with a $750m dual-tranche facility to refinance its existing private credit facilities. The deal has attracted demand with price talk of 375bps-400bps at 99.5 on the 2031 facility, enabling lead RBC to accelerate the deadline by one day to 15 July. For more buyside color and a full cap table check out our deal preview.

Going the other way, pharmacy benefits provider RxBenefits is looking to tap private credit markets to refinance its BSL debt and potentially pay a dividend to sponsors Advent International and Great Hill Partners, according to 9fin sources.

In the pipeline

Looking ahead, B2B business travel company AMEX GBT has drawn strong demand at price talk for its $1.4bn TLB due 2031 that is slated to price next week, according to a source familiar. The deal will refinance its 2025 and 2026 term loans, clearing out its maturity runway through to July 2031.

As we noted in May, AMEX GBT is riding positive tailwinds in business travel, having reported strong Q1 results that demonstrated deleveraging. Earlier this year it entered into an agreement to acquire rival CWT, continuing its track record of acquisitions to boost market share.

R.R. Donnelley is eyeing a $2.3bn debt sale to fund its purchase of Vericast’s print and digital marketing business, according to a Bloomberg report.

Also this week Platinum Equity announced a $1.35bn deal to acquire Héroux-Devtek, a Canadian aerospace component producer, with RBC leading the financing for the deal.

Fallen angels and power outages

We took a deep dive into Paramount’s $13bn debt stack this week after the company’s long awaited merger announcement with media company Skydance.

There’s plenty to unpack: the deal is broadly expected to result in a downgrade to high yield, which would make Paramount the largest fallen angel since 2020, according to JP Morgan. Aside from potential forced selling from index investors, active managers are getting their heads around the credit and any potential change of control or coupon-step ups that might be in play.

And with Hurricane Beryl knocking out power to more than two million homes in Texas this week, we did some research on credits that were affected — check it out here. Of note is utilities provider CenterPoint Energy, which is IG-rated but the company may provide more color on the financial impact of the hurricane when it reports earnings later this month.