US LevFin Wrap — Dividend deal deluge sweeps across a humming debt market

William Hoffman
+David Bell
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15 November 2024•5 min read

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With little to be done in the way of M&A supply borrowers have turned to debt markets to fund shareholder returns.

For example, higher education software company Ellucian was one of the biggest issuers on the week and received ample demand for its $2.88bn recapitalization deal that will pay a $475m distribution to its sponsors Blackstone and Vista Equity Partners. Despite the use of proceeds, certain tranches were upsized and the pricing tightened.

At least six other borrowers this week announced loans to fund shareholder returns to their sponsors including deals for software company Qlik Technologies, petrochemicals manufacturer TPC Group, and HVAC company Copeland. We delve deeper into the debt-funded divided supply in a piece published this morning.

Blackstone is a particularly active sponsor in this space over the last month. Just this morning another of its portfolio companies, overnight bank lender IntraFi Network, is out with its fourth debt-funded dividend deal in the last 12-month period.

It’s serving as a signal to some that the PE firms are preparing for a more active M&A calendar next year, according to one analyst.

"I think they're just gearing up for a really heavy M&A and IPO situation in 2025 with rates coming down, and based on who won the election,” the analyst said. “It's set up for PE firms to go ham next year."

While there might not be much in the way of new-money supply it’s clear that investors are eager to put funds to work in whatever way they can.

"Everything feels good and the market is focused on getting capital deployed and not sitting on cash balances,” one banker said. “Investors are seeing inflows from every direction post-election.”

Repricings and more repricings

It wasn’t just equity monetization deals, there were plenty of refinancings and repricings that hit the loan market this week now that election uncertainty has cleared.

Insurance brokerage BroadStreet Partners was the largest of the week with a $3.49bn repricing of its TLB due 2029 that will bring its margin down to S+300bps from S+325bps just six months after originally pricing the tranche in May. Similarly, analytics firm Dun & Broadstreet is looking to knock as much as 50bps off its $3.088bn TLB due 2029 that it’s repricing at S+225bps-250bps.

UFC and WWE promoter TKO Group is most directly riding the post-election wave due to the company’s influence on President-elect Trump’s campaign. TKO priced its $2.75bn TLB refinancing deal that managed to tighten through price progression to S+225bps from IPTs of S+250bps.

Investors said they’re happy to see the supply pick up again, but that frustration still remains for the lack of new-money deals.

“Unsurprisingly, the tone of the year is continuing post-election, which is that M&A activity continues to be light,” one loan portfolio manager said. “There’s just not a lot of new paper coming into the market.”

One of the best sources for new money deals these days seems to be private credit to BSL refinancings, as we detailed in a piece this morning.

Borrowers such as fund administration platform Gen II Fund Services and manufacturer Signia Aerospace are taking advantage of the market rally to score cheaper financing in the BSL market than they were able to achieve in private markets.

Bonds shrinking

Some hypothesized last week that rising Treasury yields would bring renewed demand for loans on the expectation that more inflation could slow the Fed’s pace of rate cuts.

That theory seems to be playing out so far and it was only fueled this week when Federal Reserve Chair Jerome Powell said he’s in no hurry to cut rates pushing the 10-year Treasury to highs of 4.5% today — the highest rate since late May.

“This expectation of higher for longer rates is a lot of what's driving inflows into the space,” the loan PM said. “We had seen retail outflows over the summer on the expectations of rates coming down, but now retail funds are coming back into the floating rate product.”

Bond investors also noted the shift. While there were nine borrowers that priced deals in a holiday-shortened week, it only amounted to $4.84bn of mostly refinancing supply in what some hoped would be a $7bn week.

“It seems like there is a bit of a surge on the loan side,” one bond PM said. “Maybe they'll steal some share from the high yield market, particularly on the private equity side as treasury rates go higher and people look for more repayable debt over fixed rate.”

The two new-money bonds in the market this week did exceptionally well including the aforementioned Ellucian deal as well as $540m SUNs due 2029 issued by Global Auto Holdings to fund its acquisition of car shipper KW Bruun Import.

Global Auto paid up to get the deal done with an 11.5% coupon, which is more than 300bps wide of where it priced its $525m 8.375% SUNs due 2029 back in January. But demand was ultimately strong with books well oversubscribed, sources said.

Secondary movement

The Netherlands-based food delivery company JustEat sold GrubHub to New York-based Wonder Group in a deal valued at $650m this week — just $150m more than the bond debt that still sits on GrubHub’s balance sheet.

It’s all the more painful considering that JustEat paid $7.3bn to buy GrubHub in 2020 at the height of pandemic-fueled food delivery services.

The remaining bonds traded down slightly this week even as its new owners promised to add some additional covenant protections ahead of a possible 2025 par call date.

Other secondary stories this week included Coinbase, whose debt has rallied sharply alongside soaring crypto prices since the election, as well as Newfold Digital, which sold off on the back of disappointing Q3 earnings.