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Banks move quickly to shift underwritten LBO debt after Labor Day

Equity volatility keeps some deals on the sideline

Frontier bond sent higher by Verizon deal

LevFin credit markets got back to work this week.

Some $8.7bn of high yield bond issuance is not nearly the deluge of $85bn of corporate debt that flooded the IG market, but several LBO/acquisition-related issuers launched new LevFin deals quickly out of the gate.

For example, racing series Formula One received a strong reception for its $850m TLB that is set to price today. Funds will be used to back parent company Liberty Media’s acquisition of DornaSports, which operates the motorcycle racing series MotoGP.

At least three others launched this week with commitments due next week.

Brookfield Asset Management is out with a $900m TLB to fund its acquisition of nVent’s thermal management business, and KKR is the sponsor for two other LBO deals: education software Instructure’s $2bn dual-tranche loan and financial consulting firm Janney Montgomery Scott’s $1.4bn dual-tranche loan.

While it’s been a busy week of new deals, there is weakness below the surface that is causing some issuers and their banks to stand down.

“We expected 20 or so deals to be in market,” one sell-side source said. “It’s kind of lining up to be as busy as we thought from the M&A flow, but there are a few repricings and dividend deals that didn’t launch because of the equity volatility this week.”

Even with 12 bond deals pricing this week and another 27 issuers launching loans, some felt it wasn’t as busy as it could have been.

There remains a lot of uncertainty in the market, sources said. Federal Reserve rate cuts are looming, the S&P 500 is down more than three percentage points over the past five days, and new economic numbers are painting a bleaker picture of the economy.

Some were waiting to see what the fallout would be from today’s jobs report, and the results were weaker than expected sparking another down day for equities and another rally tighter in Treasury rates.

“Several deals stood down this week,” one portfolio manager said. “September is always busier, but I think this is shaping up to be a below-average September particularly given how strong the market's been throughout the year.”

Some bond issuers in particular may be sitting on the sidelines until rates come down in hopes of further lowering interest rates.

But sources noted it’s a delicate balance. As of Thursday, 10-year benchmark Treasury rates fell to 3.73% for their lowest levels of the year. However, average high yield spreads are starting to creep higher as the outlook for the economy is worsening.

!0-year Treasury yields vs average HY spreads (via ICE BofA data)

“You look at all the activity in IG this week, companies aren’t waiting for rates to go lower,” the portfolio manager said. “If anything, it's people worried that this quarter might not be as strong and that they're going to have to pay more come October.”

The HY issuers that did price this were able to lock in some of the lowest coupons of the year.

In particular, Restaurant Brands was able to print the lowest coupon of any US high yield issuer this year and the lowest of any issuer since April 2022, according to 9fin data.

Execution like that may propel some borrowers to the market in hopes of getting ahead of the economic and political volatility that lies ahead.

“We’re advising clients to go now,” the sell-side source said. “I don’t see why the election would be a catalyst for things getting tighter.”

Raising Cane’s — the hugely popular chicken fast food chain known for its long drive-through lines and signature sauce — returned to the market, this time for its first leveraged loan.

The company boasted a 30% increase in revenues amid an expensive expansion in its restaurant footprint that requires more funding from the capital markets. The company is hoping that success will translate to lower borrowing costs.

Cane’s is out with a $500m TLB due 2031 that is talked at S+225bps–250bps with a 99.5 OID. At those rates, Cane’s is expected to price the loans some 150bps tight of where its $500m SUNs due 2029 priced late last year at 9.375% (those same notes are now indicated at 107 with a 7.3% YTM).

Cane’s expansion includes a new location in the heart of Nashville (via Raising Cane’s)

It’s not just fast food joints getting tight pricing. Norwegian Cruise Lines priced $315m SUNs due 2030 (Caa1/B) at 6%, which puts it among the lowest-yielding bonds to price this year, according to 9fin data.

Even dividend deals are back in play. Focus Financial resurrected a $3.7bn term loan recap, to refinance debt and pay a shareholder dividend while CD&R backed Shearer’s Foods is out with $400m SUNs to fund a distribution to its new sponsor.

The dividend financing brings net leverage from around 4.5x back to around 5.5x, where it was when the sponsor did the initial LBO last year (see 9fin’s Credit QuickTake for more detail).

The capital markets giveth but they also taketh away. Uber was upgraded out of the high yield market last month and this week issued its first $4bn IG bond to take out a big chunk of its remaining leveraged debt (a pretty good outcome for debt that was once Triple-C rated).

Some of the biggest stories of the week were outside the slew of primary issuance.

Prices on two Nordstrom SUNs briefly fell Wednesday after the retailer’s namesake family launched a $3.8bn take-private offer with Mexican retailer El Puerto de Liverpool.

The company’s $424m 4.25% SUNs due 2031 fell by more than 2 points to 86.7 and its $500m 4.375% SUNs due 2030 fell by around 1.7 points to 90.25 on Wednesday, according to 9fin data. However, by Friday morning both notes had recovered nearly all of the pricing moves and its near-to-medium term notes were largely unaffected.

In the telecom space, Frontier Communications’ term loans and bonds rallied after the Texas-based wired communication company agreed to a $20bn takeover by Verizon.

The firm’s $1bn 6% second lien notes due 2030 surged above par on the news from a price of around 93 prior. Despite already trading at around 105, Frontier’s senior secured notes also traded up by a point or two as investors anticipate Verizon will pay handsomely to tender the notes early above the call price.

Frontier bonds rally on Verizon acquisition (via 9fin)

If you’re in the north, there’s only a few more weeks to get in a round of golf before the cold sets in. But at Topgolf Callaway you could keep practicing, even after the company split its driving ranges and golf equipment businesses this week.

Topgolf’s $1.42bn TLB due 2030 slid to a price of around 98 this week after trading above par before the idea of a split was first floated during its 2Q earnings reports last month. The move was a bogey with equity investors as well, sending its stock down 12%.

Finally, Lumen Technologies offered to swap $2bn worth of unsecured debt due through 2029 into new secured notes after Kerrisdale Capital disclosed its short position in the telecom company. Our distressed debt colleagues have the full breakdown.

If that wasn’t enough, you can also check out this week’s Cloud 9fin where we break down Paramount’s pending fall from investment grade and detail what it means for high yield investors.

Trump family’s land deals in Albania stir up lingering resentments (NYT)

$13 for a video call. $25 for a movie. Tablets connect prisoners — at a steep price (WSJ)

CNBC’s official NFL team valuations 2024: Here’s how the 32 franchises stack up (CNBC)

How swing state politics are sinking a global steel deal (NYT)

Google and DOJ return for round two of their antitrust fight — this time about ads (The Verge)

Porn streamer OnlyFans paid owner $630mn in dividends (FT)

How Elon Musk is influencing Donald Trump (NYT)

Right-wing influencers were duped to work for covert Russian operation, US says (AP)

Is Boeing lost in space? Stranded astronauts raise doubts on future with NASA (FT)

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