US LevFin Wrap — We like big boats and we cannot lie

David Bell

3 May 2024•7 min read

Viking IPO marks milestone for cruise ship balance sheets
E.W. Scripps braves primary market as broadcasting names face pressure
US Silica announces Apollo LBO; more buyout financing hits pipeline

While we’re generally focused on credit here at 9fin, Viking Cruise’s IPO deserves a special mention this week, as pricing toward the top end of estimates to raise $1.54bn marks an impressive milestone in the cruise line industry’s recovery.

Cruises survived Covid by ponying up private islands and flagship assets as collateral to raise billions of dollars of painfully expensive debt, before spending the following years working to reduce the burden of heavier leverage through refinancing and operational improvements.

Now, as the industry enters what appears to be a bumper sailing season, the likes of Viking are in a position to raise equity for growth rather than survival. Recent earnings in the sector demonstrate why: NCL’s CEO said Wednesday that exceptionally strong customer demand has given the industry tremendous pricing power and has “solidified [NCL’s] trajectory for years to come”.

Royal Caribbean meanwhile is now able to borrow at some of the tightest unsecured levels in the HY market and is knocking on the door of IG with double-B ratings at Moody’s and S&P.

For credit investors, it might be harder to generate the eye-popping returns that cruise line debt generated in the early stages of the Covid-recovery, but our credit analysts think there’s still some interesting situations to follow. This week they highlighted several high yield bonds from Royal Caribbean, NCL, and Carnival they think could still generate double digit returns through the peak summer sailing season.

On the airwaves

If the mood in cruise lines is buoyant, the vibes in LevFin media and broadcasting are anything but.

Names such as Gray Television have been under some selling pressure in the secondary of late, with investors increasingly skeptical of the traditional TV broadcasting industry’s long term prospects, with declining viewers in the world of streaming and on-demand video, as well as disruption to the sports media landscape.

Certain holders of Cox Media Group’s term loan and bonds for example are organizing with Milbank, driven by concerns around the Apollo-backed TV broadcasting and radio company issuing dividends when the business is struggling and facing a high debt burden.

Broadcasters generally boost their cash coffers during US election season, but the rise of more targeted alternative political media spending might make that harder. In case you missed it, we did a deep dive on high yield media and the US election cycle earlier this week.

This creates an interesting backdrop for E.W. Scripps, which is looking to refinance existing term loan debt and sell non-strategic real estate assets, according to 9fin sources. JP Morgan is expected to lead a term loan, while BofA is expected to lead a bond offering. The timing and deal structure are still fluid, our sources said. Scripps reports Q1 24 earnings on 9 May.

New money

In terms of other upcoming deals, Deutsche Bank also announced a $1.8bn TLB due 2031 to fund New Mountain’s acquisition of accounting firm Grant Thornton this week, with a lender call lined up for 6 May and commitments due 16 May. Moody’s and S&P assigned B2/B rating to the company, new loan and $375m RCF due 2029.

Nomura meanwhile announced a $1.5bn facility for Ontic, a UK-headquartered provider of aerospace OEM parts and repairs. The company, which has been owned by CVC since 2019, announced on Friday a $450m investment from CPP Investments. The new debt financing comes in the form of a new $425m TLB due 2028 on top of the existing $950m tranche, which will be repriced. The company is also upsizing its RCF due 2028 to $125m from $85m.

The financing for CD&R’s acquisition of cloud software company Presidio from BC Partners is also in the works, with commitments due 8 May for a $2.1bn TLB due 2031 that’s talked at SOFR+375bps-400bps and a 99 OID.

Sandemonium

Adding to potential new-money supply, frac sand producer US Silica announced a $1.85bn acquisition by Apollo which is expected to close in Q3. BNP Paribas and Barclays are acting as financial advisors to the sponsor, though there is no financing condition.

On top of that, Roark Capital’s almost $10bn acquisition of sandwich chain Subway was completed this week after being approved by federal regulators. The $4.9bn of committed financing in place for that deal could result in a hefty whole business securitization, according to reports.

We’re tracking upcoming and/or potential financings in our new US LevFin Pipeline report, which is available here and will be published monthly. We monitor announced, expected, and potential new-money debt financings for companies with over $1bn enterprise value. Get in touch if you have any feedback!

Primary flow

Refinancing was again the main play in both the high yield and loan primary markets this week.

Among bond issuers, emergency medicine provider US Acute Care Solutions (B3/B-) printed a new $800m 9.75% 2029 SSN at 98, pipeline company Harvest Midstream (Ba3/BB-/BB-) a new $500m 7.5% 2032 SUN at par, and REIT Park Hotels & Resorts landed a $550m 7% SUN due 2030 at par, after upsizing by $100m and pricing at the tight end of talk.

German-headquartered aircraft leasing company Avia Solutions however pulled a proposed 2029 senior note offering, after earlier downsizing the deal from $400m to $300m at low 9% IPTs.

Loan markets saw the return of two Hollywood credits, with payroll processing firm Cast & Crew upsizing and extending its debt, while United Talent Agency raised a new fungible $300m TLB due 2028 (alongside repricing the existing 2028 loan) to fund the potential acquisition of a European soccer talent agency,

Anchor Packaging priced a $725m 2029 dual-tranche facility (extending $522m of 2026 TLB, adding fungible $203m tranche) with the incremental debt being used to pay a dividend to majority-owner TJC and minority-owner Hermann Companies.

Kidney dialysis company DaVita Healthcare Companies was looking to refinance $2.6bn of its Ba1/BBB- rated existing 2026 TLB, but ultimately only extended $1.6bn into a new 2031 loan at SOFR+200bps and a 99.5 OID.

Family-owned vegetation management company Asplundh is among the loan highlights that are expected to price next week. Wells Fargo has set tight 175bps-200bps pricing on the Ba1/BBB- 2031 loan, which is earmarked for acquisitions. Commitments are due 5 May, with sources close to the deal telling 9fin that bank investors are expected to play a key role, but CLO accounts may find the pricing too tight.

Earnings drives secondary drama

Earnings season offered up some positive signs from the beat-up chemical sector, with Tronox repricing its 2029 TLBthis week and showing some encouraging signs on the earnings call that followed.

Similarly, Carvana bonds rallied on Thursday after the used car dealer reported a sharp increase in Q1 earnings thanks to cost cutting and increased sales volume.

Sunnova Energy’s 2026 and 2028 bond prices meanwhile rebounded slightly on Thursday after executives at the residential and commercial solar company did not confirm a rumored advisor hire during a first quarter earnings call.

Graftech’s debt meanwhile traded higher after the company reported Q1 24 results that included a better outlook on future cost savings initiatives, while executives indicated they were comfortable with the company’s liquidity