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US LevFin Wrap — KKR’s bid for VMware assets and Truist insurance sale raise hopes of supply

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Market Wrap

US LevFin Wrap — KKR’s bid for VMware assets and Truist insurance sale raise hopes of supply

David Bell's avatar
  1. David Bell
6 min read

Leveraged credit markets had a few reasons to cheer this week as bankers lined up a hefty financing package for Stone Point and CD&R’s $15.5bn acquisition of Truist’s remaining stake in its insurance arm, while KKR hired UBS to arrange debt for its bid to buy VMware’s end-user software business.

These deals could offer some potential new money supply to an investor base that has been screaming for new deals, as shown by the positive reaction to a $5.6bn debt package to fund KKR’s acquisition of a stake in Cotiviti. The sponsor opted for syndicated debt over direct lenders, although the inclusion of an unusual $750m fixed rate TLBmight reflect the increasing overlap and bespoke nature of LBO financing as these markets evolve.

Elsewhere, Carvana posted its first ever annual profit, giving its creditors something of a win after the auto retailer restructured to shave over $1bn of debt last year. The company’s stack of senior secured PIK notes were up around 6-7 points this week to the mid-90s — worth a celebratory shrimp platter, surely!

There was also some gently encouraging news for Sunnova creditors, after the solar company said it would address its 2026 debt maturities next year. Yet equity investors were spooked as the stock dropped 26% on Thursday, and the company’s debt is languishing in the 80s as distress builds in the solar industry.

Tried and Truist-ed

In terms of upcoming supply, Stone Point and CD&R’s $15.5bn acquisition of Truist’s remaining stake in its insurance brokerage is expected to bring around $8bn of funded debt to the market, with JP Morgan and Morgan Stanley taking lead roles — see here for more details.

Meanwhile, KKR has hired UBS to arrange financing to back its bid for VMware’s end-user software business, which is being sold by the company’s new owner Broadcom. Sources said the proposed debt package includes around $2.5bn of first lien term loans.

This potential new supply would likely be welcomed by investors amid the deluge of repricing and refinancings, and further indicate how sponsors have more reasons to look at syndicated markets over private credit. But don’t get too carried away — there’s not a whole lot else in the works, according to bankers.

As the chart below shows, refinancing activity continues to dominate, even as the cohort of loans trading above par shrinks from its January peak.

“The M&A pipeline is slowly building, but we’re waiting for the flood,” said a banker. “The repricing trade is sort of gone at this point but there’s plenty of refis and possible dividends. That’s the trade.”

In the meantime, earnings season is in full swing and while Nvidia is dominating mainstream headlines, AI is also fueling growth at certain leveraged credits such as RingCentral. Our credit team also reviewed earnings at First Quantum Minerals, Blue Owl, Community Health Systems and Ardagh this week.

Via 9fin

Cashing out

One Toronto Gaming is an example of a strong performing name for whom investors have been willing to fund sponsor dividends.

The Canadian casino company is finally exiting a period of heavy capex investment on renovations and a glitzy new venue in Toronto. Seven months after refinancing the company’s capital structure, the sponsors (Apollo-backed Great Canadian Gaming and Brookfield Business Partners) are taking advantage of the company’s strong performance and receptive debt markets to issue a $450m add-on TLB, which is expected to price today.

Let it flow

Tallgrass Energy demonstrated credit investors’ appetite for the sector with its second debt raise in as many months.

The $1.45bn offering of holdco notes is secured against Blackstone’s equity stake in the business, and came after the company issued an $800m 7.375% SSN due 2029 in January.

As seen by the huge appetite for Venture Global’s jumbo bond offerings last year, high yield investors have a soft spot for LNG — though another operator, Tellurian, just had to loosen the terms of its debt agreements to give it some breathing room on liquidity, including the ability to make interest payments in-kind.

Buy yourself something nice

It was no surprise to see Blackhawk Network return to a more receptive market after the gift card operator pulled a $1.75bn refinancing last year.

This time around, the company is offering a $1.7bn TLB at SOFR+450bps-475bps to repay existing debt and fund a portion of its $300m acquisition of Tango Card.

The company, which is sponsored by Silver Lake and P2 Capital, will have to overcome investor concerns over its middleman position in the retail industry, gift card fraud issues, and the precarious state of many retailers, as discussed by our distressed debt team last week.

Setting sail

Royal Caribbean might be on something of a farewell tour in leveraged credit markets, which came to the cruise line industry’s rescue in 2020.

Since piling on secured debt at double digit yields during the pandemic, Royal Caribbean has been working to repair its balance sheet and improve its credit ratings.

This week, the company refinanced its 11.625% SUNs due 2027 with an upsized $1.25bn SUNs due 2032 that launched at 6.25%, in one of the tightest unsecured bond pricings in the last year, according to 9fin data.

Investors say it won’t be long until the company is restored to investment grade. Rating agencies are certainly taking note, with Moody’s and S&P both upgrading the company this month.

Stub notes

  • Sound Inpatient Physicians and its lenders are figuring out refinancing options after a plan to issue debt secured against an accounts receivable SPV fell through
  • GEO Group said in its Q4 earnings the company will potentially refi debt in the next 12 months. The priority is a 2027 term loan which is its most expensive debt, and then the 2026 converts
  • Loans are not securities
  • The Kroger-Albertsons merger is expected to face legal pushback from FTC and states next week
  • Staples copped a negative outlook from Moody’s which cited concerns over the company’s $3.9bn of outstanding debt maturing April 2026
  • According to JP Morgan, 54% of the HY universe now trades inside 250bps, down from 19% at the start of November. This is a high since 2007, according to the bank, having previously peaked at 49% in December 2019

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