US LevFin Wrap — Darktrace LBO slated to price next week, KIK dividend deal prices after pushback

David Bell
+Emily Fasold
+ 1 more

28 June 2024•5 min read

Slowest month YTD for HY primary; second most active loan primary on record
CDK Global bonds hit after data breach
Darktrace LBO financing slated to price ahead of July 4

The fireworks and cookouts are next week but the US LevFin market may already be winding down its early summer party.

Acquisition financing for UK insurance broker Ardonagh raced to the finish line this week and debt financing for the leveraged buyout of software company Darktrace is looking to do the same ahead of next week’s July 4 holiday.

Overall, LevFin secondary markets are closing the week on a fairly positive note, traders said. High yield primary volumes slumped in June for the slowest month of the year to date, but the market’s still well above last year’s pace. Gross loan issuance was the second most active on record, according to JP Morgan analysts (see our volume numbers below).

Gross loan volumes were boosted this week by sizeable reprice and refi deals including a $5.2bn and €400m repricing for Worldpay, following its separation from FIS earlier this year.

“This week was a bit of a whirlwind — everyone’s launching deals with accelerated deadlines trying to get ahead of the July 4 holiday next week,” said a CLO manager.

Morgan Stanley (USD lead) and JP Morgan (euro lead) on Thursday priced a $1.1bn TLB due 2031 and €400m TLB due 2031 to fund Ardonagh’s acquisition of Australia-based independent insurance broking platform PSC Insurance Group, accelerating the timing from the initial July 2 deadline. The B3/B- rated tranches priced at the wide end of price talk, at SOFR+375bps and E+425bps.

“Timing is aggressive, and terms are still aggressive — that’s just how the market is right now,” the CLO manager said.

Cybersecurity

Two tech deals were in the market this week, both of which are looking to take advantage of the hype around artificial intelligence.

Goldman Sachs is shopping a $2bn TLB package to fund Thoma Bravo’s acquisition of cybersecurity firm Darktrace. Lenders said it has a novel approach to detecting incoming threats through AI, but may struggle to be top dog in a crowded market. The company’s two-part $2.1bn term loans are set to price before investors break for the Thursday holiday.

The deal has hit the market at an opportune time for the cybersecurity industry as a host of other LevFin players deal with the fallout from data breaches.

Bonds issued by CDK Global, an auto dealership software business owned by Brookfield, dropped a couple points over the past week after the company’s systems were hacked. The outage affected operations at auto dealers including Asbury Automotive, whose bonds were also down around half a point in secondary trading this week.

BMC Software meanwhile is also in the market looking to convince prospective investors to look past its cash cow old mainframe business and see the potential in new AI cloud services. It may not be as exciting as high-growth tech names like Nvidia or CrowdStrike, but this legacy software provider is seeing positive earnings growth ahead of this three-part $6.6bn term loan recapitalization.

On the flipside of AI, stock photo company Getty Images is working with a new bank to pitch its story to debt investors ahead of 2026 and 2027 maturities after a previous refi attempt got pulled amid buyside concerns about how image generators could impact its business

Chemical reaction

KIK Consumer Products was an outlier in the primary this week with investors pushing back on the pricing and terms of a $1.9bn debt package of bonds and loans to refinance debt and pay a hefty dividend to the sponsor, Centerbridge.

“It struggled out of the gates,” said a HY portfolio manager.

Investors remain cautious on lower quality names (KIK is rated triple-C at the unsecured level) and were wary of the increased leverage and lower free cash flow profile because of the dividend. The PM noted similar pushback on the Staples refinancing last month.

B&G Foods also priced its $700m debt refinancing at the wide end of talk. It priced a $250m tap (upsized from $100m) of its 8% 2028 SSNs at 101.5, and a $450m TLB due 2029 (downsized from $600m). The margin on the new loan landed at SOFR+350bps and a 99 OID, after setting price talk at 350bps-375bps and 99-99.5.

Investors we spoke to said the refinancing was positive but questioned the sluggish growth of the company’s food brands.

Riding the rails

Florida train operator Brightline saw its bonds trade down around five points this week after the company’s latest ridership report caused some concern among investors. Investors said rider volumes are not growing as quickly as anticipated at the same time, despite lower ticket pricing.

Looking ahead, logistics company RXO said it planned to issue debt to take out a bridge financing from Goldman Sachs to back its $1bn acquisition of Coyote. The funding includes a $550m equity investment from the company’s two largest shareholders MFN Partners and Orbis Investments, according to a press release.

Finally, we took another look at car rental company Hertz after the company raised $1bn of expensive debt last week. It bought runway with the debt refinancing, but warned it would be EBITDA-negative in Q3. Fitch downgraded the company’s unsecured debt two notches to CCC- from CCC+ on Friday given the increase in secured debt on the balance sheet.

We discussed Hertz more on this week’s Cloud 9fin podcast — check it out here.