US LevFin Wrap — Flexjet and Grant Thornton deals shine amid repricing deluge and M&A buildup

David Bell
+Sasha Padbidri
+ 1 more

13 December 2024•6 min read

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Last Christmas, I gave you my ARRC. But the very next day, you repriced it away. This year, to save us from tears, I’ll structure it with love and cheer.

As we flagged last week, the loan market remains inundated with aggressive repricing activity as we head towards the final stretch of 2024. This week was particularly notable as close to $67bn of loans repriced following two bumper weeks of deal announcements, according to 9fin data.

The loan repricings may not be as exciting as new money deals but it is still a frantic amount of allocations to get through.

“It’s not in the headline numbers, but on average about 5% of investors are recycled during these repricings and those are new money orders coming in,” one banker said. “Usually we talk about panic selling on the downside, but right now there's a panic buying going on.”

That said, there were several interesting new money deals for investors to get stuck into including transactions from Flexjet, Grant Thornton, and Saks Global (more on that below), allowing investors to deploy some of cash inflows that have spiked recently.

This is particularly notable on the high yield side where total assets under management in high yield funds have risen 14% year to date to a three-year high of $359bn, according to JP Morgan data. That’s being supported by systemic flows into credit funds drawn by attractive yields, sources said, despite average high yield spreads being at their tightest levels since before the last financial crisis.

Some observers have seen a shift from sovereign debt to corporate credit and investors expect this money to stick around to capture these high coupons.

“We think the strong demand for high yield is driven by investors who are buying high yield bonds on a yield basis, not based on spread levels,” said Mitchell Garfin, co-head of leveraged finance at BlackRock.

Credit quality also improved as lower-rated credits migrate to the direct lending market, while portfolio trading and ETFs have boosted the transparency of the asset class, he said.

“Given these changes, we believe investors are increasingly using the sector as a strategic portfolio allocation, rather than an opportunistic or tactical play. We anticipate this secular shift in demand could continue,” Garfin said.

Deals deals deals

Several new money deals caught the eyes of investors this week — after a prolonged marketing period, luxury retailer Saks Global issued $2.2bn of SSNs due 2029 via lead bank Jefferies to fund its acquisition of peer Neiman Marcus. But the deal also required investors to take a leap of faith on projected synergies, though the risk was cushioned by the value of the company’s real estate

Jet operator Flexjet’s senior notes due 2029, led by Morgan Stanley, were massively oversubscribed; lenders highlighted some financial quirks with the company’s fractional ownership model but ultimately bought into the growth of the industry. We’re curious though — did the company’s move to fly analysts out to Cleveland on a private jet help?

Professional services firm Grant Thornton launched a multi-tranche loan offering this week via Deutsche Bankto reprice a loan issued earlier this year, and raise additional debt to fund its acquisition of Grant Thornton Ireland. It’s worth pointing out that the firms across its global network share the same brand name but are legally separate entities.

Meanwhile, CVR Energy‘s Mizuho-led loan offering upsized by $25m to $325m and priced at S+400bps at 99 OID, the tight end of talk, to fund capex and boost liquidity. Though the borrower is a first-time loan issuer, it has outstanding high yield debt.

Pushback

But not all deals were well received.

A $2bn TLB that will fund the separation of data storage company Western Digital’s NAND memory segment Sandisk into a publicly traded entity has been slow to gain traction with investors and is now past its original commitment deadline, according to sources. We did a deep dive on some of the reasons behind this, including potential volatility in the data storage industry and tariff risks.

Elsewhere, some issuers are pivoting away from the syndicated loan market to refinance debt — 9fin reportedthat Jefferies is considering private credit solutions for Neptune Retail Solutions to fund a potential debt refinancing, following some outreach to the syndicated loan market.

At least one repricing also received some pushback. Energy company Rehlko tried to cut the margin on its $1.26bn TLB due 2031 by as much as 150bps but had to tighten price talk and only got 100bps off its margin to price at S+375bps. Still not a bad outcome and issuers like this can always try again in six months if they want, one sell-side source said.

“If you look at all the paper that's come through, very few of them have gotten any pushback whatsoever,” the sellsider said. “Even if you’re reasonably aggressive with the market, it gets done just because people really need to hang on to the paper, given that there have been limited new issue opportunities. We can count the ones that have gotten pushback on one hand.”

M&A buildup

Looking towards 2025, conversations are quickly ramping up for deals that could get announced in the first quarter, fueled by cheaper cost of capital, in addition to investment grade companies buying up high yield names, sellside sources told 9fin.

Some of these deals may even come from the slew of M&A-related headlines that surfaced this week, including:

Walgreens — its debt popped on 10 December following a published report that Sycamore Partners was looking to acquire the company, prompting questions around the change of control language in its existing bonds
AssuredPartners — the company’s unsecured debt traded up to slightly above par on news that it will be sold to larger competitor and investment-grade issuer Arthur J. Gallagher in a deal that valued the target at $13.45bn
Novolex — the Apollo-backed company lined up financing to acquire Pactiv Evergreen

These potential transactions are an encouraging sign that the M&A backdrop is improving, which could finallymove the market away from the heavy repricing flow we saw this year.

And in the world of private earnings, we also reported this week that PetSmart recorded a 25% year-over-year decline in third quarter EBITDA to $279m due to lower discretionary demand from cash-strapped consumers. For comparison, publicly traded peer Petco reported $1.51bn in sales and adjusted EBITDA of $81.2m for the same period, both YoY increases.