US LevFin Wrap — LBOs clear at tight levels, Alliant funds huge dividend for Stone Point, J. Crew returns

David Bell
+Bill Weisbrod

13 September 2024•9 min read

This is our weekly newsletter on all things US leveraged finance, from the latest trends to in-depth coverage, to people moves. Explore all our market wraps here.

A heavy week in the US primary market brought over $24bn of leveraged loan announcements and over $10bn of high yield bonds to investors.

The deal flow included LBO and M&A financing for sponsors such as KKR, Bain Capital and Platinum Equityalongside a closely watched return to the capital markets for J. Crew and a jumbo $4.8bn dividend financing for Stone Point-backed insurance broker Alliant.

This was the busiest week in the primary since mid-May, according to JP Morgan research. It was met with solid inflows to high yield funds this week ($633m, per JPM — the 7th inflow in the past 10 weeks). Borrowers were on the front foot to lock in tight pricing, with high yield spreads at a low since June 2022, according to JPM, and with expected rate cuts signaling doubts over the economy.

Of the 19 new HY issues tracked this week by investment firm Seelaus, 17 were printed at or well inside the tight end of initial price thoughts, with just two settling for the mid-point. New issues printed this week are bid up an average of 5/8 of a point as of Friday morning, the report said.

“It’s pro-issuer from a supply and demand perspective,” said James Pirouz, head of capital markets and syndicate at Truist Securities. “The high yield floor has broken through 6% with some coupons in the 5.5% to high 5s coupon area, which is pretty meaningful. From that perspective, things feel very good.”

Supply is expected to level off with Deutsche Bank analysts seeing another $2bn of HY in the pipeline. Bankers said they expected repricing and refinancing to be the main focus ahead of next week’s FOMC meeting, with M&A and LBOs expected to tick up but not take off in earnest until the new year.

You can see the new money pipeline as of early September here.

The list includes debt financing for Veritas Capital’s $2.45bn buyout of NCR Voyix’s cloud-based digital banking business (plus up to $100m in future contingent consideration). Sources said pre-marketing is underway by UBS(lead left), Citi and RBC.

Via 9fin HY bond and loan screeners (chart)

Deals deals deals

While our colleagues in Europe report a quieter than expected primary market for LBOs, US investors had their pick of at least four sponsor-driven acquisition financings this week.

KKR funded its acquisition of education software company Instructure with $2.05bn of first and second lien loans. Morgan Stanley and KKR were able to tighten pricing on the loans relative to other education companies while adding certain investor protections. Investors said they are mindful of a sharp increase in leverage but that the company compared well against smaller players in the sector that have struggled.

Other LBOs looking for funding this week included:

nVent Thermal Management, the heat management business that funded its $1.7bn carve-out from parent company nVent Electric by sponsor Brookfield Capital Partners. Lead arranger RBC was able to tighten the $900m TLB due 2031 to 350bps and 99.5, in from price talk of 375bps-400bps
Platinum Equity’s take-private of outdoor sporting goods company GSM Outdoor, for which BofA is marketing a $900m TLB due 2031 at SOFR+450bps-475bps with a 98.5 OID. Orders are due 20 September
Envestnet is looking to fund its $4.5bn take-private by Bain Capital with a $1.76bn TLB due 2031, which is being offered at SOFR+350bps and 99.5. Commits are also due 20 September

Competition

In this strong environment, bank underwriters are effectively pitching sponsors to tap syndicated markets on the promise of tight pricing and solid execution, which has proven true this week.

But private credit funds remain a competitive alternative. Several are now looking to tap more diverse sourcesincluding retail investors for growth, such as Apollo’s recent tie up with State Street to create a private credit ETF.

“We are still seeing dual track processes but with more private credit funds being created we’re seeing it be more competitive,” said Kris Ring, a partner in Goodwin Procter’s private equity practice. “BSL arrangers are aggressively going out to sponsors with terms and sponsors are listening. It’s a matter of time before these pick up again.”

Infrastructure services provider United States Infrastructure Corporation is one of the latest companies to make the switch from the broadly syndicated to the private credit market, 9fin reported this week.

One advantage that direct lenders have over the broadly syndicated market is offering delayed draw term loans, according to sell-side sources. These have become a more common sight in syndicated markets, as our colleagues in Europe covered earlier this year, but direct lenders appear more willing to stretch what they can offer — including funding DDTLs to help sponsors pay the interest on existing debt.

“They don’t have ticking fees, so private markets have an advantage there,” said a leveraged finance banker. “That’s a bit of tension between the two markets. It’s competitive but every deal is different so people make choices on what they think makes sense.”

Podium finish

This week brought more acquisition financing including:

Formula One was viewed favorably by investors as banks were able to upsized the debt financing for its acquisition of Dorna Sports that we previewed last week to $2.55bn up from $1bn at launch
CD&R-backed clothing company S&S Activewear announced a $675m TLB due 2031 to fund its acquisition of alphabroder from Littlejohn & Co

With DPI becoming the new IRR, sponsors are under pressure to return cash to LPs in the absence of attractive exit opportunities. So it made sense to see a bunch of dividend recaps for private companies this week, including:

Alliant, which added to the flood of insurance company debt into the LevFin market with a $4.8bn deal to fund one of the biggest dividends seen in the market this year to owner Stone Point
Shearer’s Foods, which capitalized on growing demand for private label products to fund a dividend to CD&R
Focus Financial, which resurrected and priced a $4.35bn loan and bond package that was postponed amid volatility in August to refinance debt and pay a dividend to CD&R. Banks shifted $300m from the loan to the bond
Chamberlain Group, Blackstone’s residential and commercial garage door maker, with a $205m TLB add-onthat was upsized and priced tighter than talk
Rockpoint Gas Storage (owned by Brookfield) which priced a $1.25bn TLB due 2031 with doc changes
Midstream company Third Coast (Arclight Capital Partners) meanwhile is marketing a $950m TLB due 2031with commits due 18 September
Help at Home is offering a $900m TLB and $600m SSN due 2031 to repay debt and fund a dividend to Centerbridge and Vistria Group. See our Credit Quick Take and Bond Legal QuickTake.

“Banks are looking for a means to create supply,” one portfolio manager said. “One of the ways you do that is you take a look around at the businesses that are performing pretty well, the ones that are less levered, and you look to do dividend deals to bring some much-needed supply to the market.”

A good fit?

Other highlights included J. Crew returning for its first debt issuance since bankruptcy in 2020. The retailer is offering a $450m TLB due 2031 at SOFR+625bps and a 98 OID, with commitments due 17 September.

Raising Cane’s priced its first-ever leveraged loan at tight levels to fuel the chicken chain’s continued expansion. The $500m TLB due 2031 was priced at 200bps over SOFR and 99.75, in from talk of 225bps-250bps and 99.5.

Independent Verizon retailer Victra came to the bond and loan market to refinance $1.2bn of existing debt on the same day that Apple launched its brand new iPhone 16; sources following the deal said it highlighted the company’s reliance on cell phone innovation and support from Verizon, but the debt was being offered at fairly wide spreads that may prove attractive to investors.

Avis Budget had a smooth ride through the primary, printing upsized $700m SUN due 2030 at 7.25% for GCP which may include repaying loan debt. Sources following the deal highlighted that Avis benefitted from strong demand for rental cars buoyed by both domestic and international travel.

Avis came to market in the same week that bonds issued by competitor Hertz plunged on the news that it may have to make larger-than-expected interest payments to investors. Our distressed legal team unpacked the court’s ruling here.

PetSmart debt also dropped slightly after the company reported a more than 20% drop in Q2 adjusted EBITDA.

Finally, ViaSat bonds were down around four points on Friday after United Airlines picked Elon Musk-owned competitor Starlink for its in-flight wifi; this came in the same week the company raised almost $2bn in the HY market.