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US LevFin Wrap — From double-Bs to LMEs, and everything in-between
David Bell
+Emily Fasold
+ 1 more
•6 min read
There’s plenty to keep track of in the leveraged finance market — whether it’s the volume of more aggressive financings hitting the tape for a wider range of borrowers, or the swathe of liability management exercises coming for highly levered companies still struggling for market access.
Refinancing and repricing activity are still the main focus: as we highlighted in our latest LevFin Primary Review, it all comes down one thing: spread compression, as demand continues to outweigh supply.
MoneyGram, Medline and Solenis were among the sponsor-backed names taking advantage of demand to manage their balance sheets this week.
Sources also pointed out the tight execution on some single-B rated deals: B2/B rated building product company Gulf Eagle Supply,for example, printed a $675m TLB due 2031 at SOFR+300bps and 99.75.
A debut print for AssetMark meanwhile was an encouraging marker for new LBO financings: UBS priced a B2/B+/BB rated $1.35bn TLB due 2031 at SOFR+300bps and 99.75 to fund GTCR’s $2.7bn acquisition of the wealth management tech company.
“We’ve seen some high leverage, B2 rated names hit the tape and price near par with very low spreads in the last few days,” said a leveraged finance banker. “The BSL market feels super hot right now.”
The high yield market feels pretty warm, too. Roughly $9bn of supply hit the market this week, with 11/12 tranches priced at or inside the tight end of IPTs, according to a note from R. Seelaus. Follow-on performance was good: this week’s new issues were bid up an average of 3/8 point by Friday morning, the research report said.
We also noted the increase in triple-C bond supply — admittedly from a low base — which is predominantly being driven by supply from insurance companies such as Acrisure that are rolling up smaller players.
Heavy refi supply boosts loan volumes (via 9fin data)
Hitting the wire
Investors are still somewhat discerning. Payment company MoneyGram for example was able to cut its borrowing costs by repricing its $398m 2030 TLB, but 50bps wide of where Goldman Sachs initially hoped to price the deal. Some investors said they remain wary of the regulatory and secular challenges facing the payment space.
Medline was able to tighten the pricing on a $2.2bn multi-tranche loan and bond package to take out CMBS financing issued as part of the medical supply company’s $30bn+ LBO in 2021. Investors and rating agencies welcomed the deal, which will give it more financial flexibility.
We also noted how Harbor Freight Tools was able to print a new $2.85bn TLB due 2031 tight to talk at 250bps and 99.75 to take out its 2027 TLB, after coming through an earnings slump thanks to easing supply chain issues.
In one example of how aggressive some borrowers can be, we saw that CQP Holdco priced its $2.211bn loan repricing with an exceedingly low 1.05x debt service coverage ratio covenant.
In the secondary bond market meanwhile, Stericycle bonds popped on Monday after it announced it was being bought by IG-rated Waste Management, and Altice International bonds dipped on Tuesday after a Moody’s downgrade.
These are all encouraging signs for bankers prepping new money syndications. For a full breakdown on what’s out there, check out our latest US LevFin Pipeline which tracks confirmed, expected, and rumored debt financings on our radar.
This week we also reported on two situations that might result in new supply.
Badia Spices is working with Raymond James to explore a potential sale, which is being marketed on around $100m of EBITDA and an estimated 12x multiple.
Insignia International Foods meanwhile is planning on launching a $240m recap loan that will pay a $70m dividend to its sponsor, 9fin reported on Friday.
For acquisitions, sponsors are running with private credit and syndicated debt options all the way through to the end of auctions, said bankers. But tight BSL pricing is proving tough to turn down. Underwritten second lien debt is also becoming an option, they said.
“We were on a call with a sponsor earlier today that almost always does upper middle-market-sized deals,” the banker said. “Their first inclination was to go with private credit, since that’s what they always do, but once we told them the terms they could get in BSL, they were sold.”
Woe is LME
Sometimes looks can be deceiving. In May there were no actual defaults (in terms of missed interest or principal payments) for the first month since December 2022, according to JP Morgan.
But the $17.7bn of loan distressed transactions year-to-date is already the largest annual total on record, according to the bank.
If you’re a typical par lender who thinks liability management exercises (LMEs) are only for the most distressed credits, think again.
Analysts at BofA say the trend is coming for a broader sub-set of the LevFin universe, as issuers and lenders come to terms with the reality of long-term higher interest rates.
“The new normal performing/financeable debt leverage is now closer to 4x, compared to 8x at the peak,” said BofA researchers. “This implies the LME risk may not be limited to the bottom decile alone.”
About 20% of issuers in the 9th decile have debt leverage over 6x, well above the 4x performing threshold, according to BofA.
“We think the market is going to shift its attention to this segment soon now that the bottom decile is being properly viewed as non-performing,” the research note said.
Our distressed debt team flagged this trend in March: as advisory firms circle the market for mandates, they’re advising lenders to circle the wagons earlier than ever to avoid being on the wrong side if the company has to restructure later down the line.
On that note, we reported this week that certain Hertz unsecured lenders had organized with Wilkie Farr amid reports the car rental company was looking to raise capital in light of recent results.
As we reported last week with Pluralsight, the LME trend has also spilled into the private credit market. Check out the latest Cloud 9fin podcast with guests from Freshfields for more!
