US LevFin Wrap — Endeavor LBO debt enters the arena, no respite in loan repricing deluge

David Bell
+Dan Milka
+ 1 more

17 January 2025•7 min read

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The financing for Silver Lake’s LBO of sports media company Endeavor took a leap from the top ropes into the loan market this week, but otherwise it was business as usual with heavy repricing activity showing no signs of tapping out.

Worldpay ($5.2bn), Hub International ($5.1bn) and Great Outdoors Group ($4.5bn) were among the biggest repricings this week.

While high yield supply has come in fits and starts, loan issuers are taking advantage of what could be the tightest spreads the LevFin market sees this year, according to some sell-side desks. New money supply is expected to start percolating more seriously toward the end of Q1, but first the market will have to contend with any potential volatility or policy uncertainties after the new administration takes office.

"There's just so much going into what happens post-Monday when Trump comes into office as far as the economy and trade," said David Forgash, a managing director at PIMCO. "I think that is the reason for the pause of new issuance, but I do expect it to dial up right after that."

Beyond that, spreads could be pushed higher by new supply from companies that have until now delayed refinancing cheap debt taken out during the pandemic, said one banker.

Until then, expect the repricings to continue: more than 64% of the loan market is still trading above par (despite last year’s unprecedented repricing activity) according to Bank of America analysts. They expect 16% of the loan market totaling $220bn to reprice in the next three months.

“For certain credits that are performing well, you have to suck it up and deal with the market dynamics,” said a buysider.

Chobani’s repricing was a case in point — the yogurt maker slashed as much as 125bps with its $927.5m repricing this week. Sources said the company’s ability to borrow more cheaply was as much down to its strong EBITDA growth over the past year as it was about broader market conditions.

A slow start for the HY market; loans dominated by repricings (via 9fin screeners — see chart)

New money

Endeavor Group Holdings’ buyout financing reflects the strength of the loan side of the LevFin market — in addition to a $3bn TLB that launched on Thursday, the deal is expected to consist of a $1.25bn TLA and a $3bn margin loan that’s tied to stock issued by Endeavor unit TKO, the owner and operator of World Wrestling Entertainment (WWE) and the Ultimate Fighting Championship (UFC).

Buyside sources said that weak covenants are a concern, but they’ll be weighing those against the company’s strong performance, a potentially lucrative upcoming contract renewal between UFC and ESPN, as well as the company’s perceived friendliness with the incoming Trump administration.

A $5bn debt package raised by battery company Clarios this week also highlighted issuers’ preference for loans over bonds; banks on the deal upsized the loan component by $1bn (downsizing a bond by $500m) to fund one of the largest dividends seen in recent years to the company’s PE owners Brookfield and CDPQ.

The deal got the full 9fin treatment: see our news write-up here plus a Financial QuickTake, Loan Legal and Bond Legal QuickTakes as well as ESG QuickTake. The impact of tax credits was a key topic for lenders.

Powering up the loan market production line (via Clarios)

Buyside sources said that the flexibility to pre-pay in the loan market is worth the premium over the relatively lower coupon from issuing bonds, at present. Demand is also shifting to loans, with HY funds reporting a sixth straight week of outflows while loans pulled in $1.4bn this week, according to JPM.

Another new money deal is set to wrap up this week — a $1.975bn TLB financing for Odyssey Investment Partners’ carve-out of Honeywell’s PPE unit, which will merge with Protective Industrial Products. The loan was upsized by $50m and the spread landed at SOFR+400bps, at the tight end of SOFR+400bps-425bps price talk. A key question for lenders was the company’s growth potential after it pivoted heavily into making masks during the pandemic.

Energized

Energy issuers were active in bond markets this week with deals from Buckeye Partners, W&T Offshore and CNX Resources all raising debt in an otherwise quiet high yield market. Just $7.1bn ($1.25bn ex-refi) of HY bonds have priced YTD versus $31.6bn in January 24 and an average January of $29.3bn since 2010, according to JPM data.

Sources said companies in the energy sector are renewing their focus on production and organic growth after a spate of acquisitions and consolidation in the industry last year.

“Energy companies in general this week have been maybe proportionately more active, because I think they feel that there's just more certainty in the landscape and ability to invest in the next four years,” said one investor. “They want to have liquidity while spreads are still tight.”

Dialing up supply (via CNX)

Soaring demand for energy to fuel data centers and the growth of AI computing is also seen as a huge tailwind for the sector, which includes infrastructure as well as exploration and production names.

“It's the time-honored tradition of selling shovels to the gold miners,” the investor said. “It's the companies in battery storage and transmission and distribution. You're starting to see kind of the pull-through on a lot of the infrastructure bill."

Elsewhere in the bond market, hospital operator LifePoint took advantage of the strong backdrop to refinance its next upcoming debt maturity with new 2032 SSNs that came with a heftier coupon than the 2027s it was taking out.

On the move

Beacon Roofing Supply bonds climbed this week after building product distributor QXO went public with an $11bn offer for the company. Beacon had rejected the same offer in November. QXO said it has $5bn of cash on hand and committed financing to support a deal.

H&E Equipment’s $1.25bn 3.875% SUNs jumped 10 points to par on the news that United Rentals struck a deal to acquire the company.

Nielsen’s 2029 TLB was down about five points this week amid a contract dispute with Paramount.

Meanwhile, we continue to track the impact of the Southern California wildfires on credits in the leveraged finance universe. Our initial report this week discussed names including Southern California Edison as well as media credits including Lionsgate, United Talent Agency, and Creative Artists Agency which launched an incremental $300m add on to its $2.1bn term loan due 2031 via Bank of America earlier this week.

Roll-up, hold up

KKR’s roll-up strategy came under fire this week in a $650m SEC lawsuit targeting the inadequacy of the private equity giant’s pre-merger anti-trust disclosures.

In particular, the suit highlighted two main examples where KKR was able to close two “potentially anticompetitive” transactions after submitting filings that omitted or altered documents relating to the competitive situation — namely the acquisition of Emsi and its subsequent merger with existing KKR portfolio company Burning Glass, in addition to the acquisition of Lynx and merger with Atlantic Aviation, both of which closed in 2021.

In both roll-ups, “KKR omitted and altered required documents about the affected markets that would have informed the Antitrust Division’s review of the potential competitive effects of the acquisitions,” according to the SEC filing.

KKR has filed a countersuit, accusing the Antitrust Division, Justice Department and FTC of trying to chill M&A activity by imposing “draconian and grossly disproportionate penalties”.