US LevFin Wrap — Medline looks to mega TLB repricing, Truist Insurance pushes tight LBO debt

David Bell
+Bill Weisbrod
+ 1 more

15 March 2024•6 min read

If anyone needs to time a repricing deal perfectly, it’s the issuer of the biggest leveraged loan in the market. So let’s see how things play out for Medline, which launched an effort to reprice its massive $6.143bn TLB due 2028 via Bank of America on Thursday.

The healthcare products supplier is part of a new wave of loan repricings this week, after it initially appeared that the repricing boom of January and February had subsided. More than $9.3bn of loans were repriced this week, up from $7bn last week.

In addition to Medline, the biggest repricings launched this week came from aerospace engineering company TransDigm ($4.53bn), chemical distributor Univar ($2.754bn) and call center tech company Genesys Telecommunications ($2.619bn).

When accounting for all new supply (not just repricings) roughly $17.5bn of new leveraged loans and $4.2bn of high yield bonds were priced this week, compared with $15.6bn of loans and $7.6bn of bonds last week. Year to date, loan and bond issuance is $224.6bn and $71.6bn, respectively, compared to $54.9bn and $40.5bn for the same period in 2023, according to 9fin data.

In bonds, a spike in rates ahead of next week’s Federal Reserve meeting spurred a sense of urgency from some issuers this week. For example, energy companies Baytex and Vital both opted to pay steep call premiums in order to take out upcoming maturities.

This kind of heavy refinancing activity has been good for market technicals, if not for investors sitting on cash. The widening of market access to riskier names has also encouraged investors, even if analysts at BofA warned on Friday that the window appears to be narrowing.

Triple-C debt has outperformed the rest of the market in the year-to-date: triple-C bonds are up 3.07% YTD, versus a 1.04% gain for overall HY and 0.43% for double-Bs, according to JP Morgan researchers.

“The HY new issue market has been a tale of two types of issuers,” said Adam Spielman, head of leveraged credit at Chicago-based investment platform PPM America. “Well known, higher quality names are pricing generically and offer limited value. We think there are better opportunities among off-the-run names.”

Source: 9fin

Medline’s loan repricing came after the company gave investors an early look at encouraging Q4 numbers last month. The company is growing under its private equity sponsors Hellman & Friedman, Blackstone and Carlyle, who took the company private in 2021 at a reported valuation of $34bn, backed by a nearly $15bn debt package.

The repricing deal removes the previous leveraged-based pricing grid, strips away CSA, and aims to cut the margin from 300bps to 275bps-300bps. That’s roughly in line with average double-B loan spreads, reflecting Medline’s position as a well-liked credit at the top end of single-B ratings.

“It does seem like repricings are picking up again,” said a portfolio manager. “Almost entirely high-quality double-Bs. Those are usually the first to come. We’re waiting to see if it turns into a wave or just one-offs from the names that missed it the first time around.”

Some trickier refinancings are also in play: Russell Investments has relaunched an effort to extend its 2025 maturities with a new $1.2bn TLB due 2027 that includes the option to pay interest in kind. The loan is being talked at S+500bps with an additional 150bps PIK.

Russell pulled its last attempt to refinance the debt in March 2023; after that, an ad-hoc lender group advised by Gibson Dunn formed to negotiate terms.

Capital markets appear to be thawing even for companies in the private prison space. Prison phone call provider ViaPath Technologies is looking at ways to address upcoming debt maturities, which could include raising new debt from direct lenders, according to 9fin sources.

The company has a $920m first-lien term loan due November 2025 and a $475m second-lien term loan due a year later.

GEO Group, another private prison operator, has also showed openness to return to the debt markets in recent earnings discussions, and last week CoreCivic printed its first HY bond in almost three years — a $500m 8.25% senior note that has rallied from par to 104.

Cloud Software Solutions’ $1bn TLB offering is also indicative of the times: sponsors Vista Equity Partners and Elliott Investment Management are looking to take out a slug of preferred equity issued as part of the company’s LBO and merger with TIBCO in 2022.

At price talk indicating a roughly 10% all-in yield, the new loan still offers considerable savings — as we reported last November, the preferreds carried a hefty 17.5% coupon, payable in cash or in kind.

Recall that the enterprise software company, formerly known as Citrix, paid down $1bn of the $2.5bn of preferred equity just four months ago, with a B2/B rated 2029 TLB that pays a spread of 450bps and was last quoted around 99. At price talk, the new loan would offer an additional 1.5 years of tenor at roughly the same cost, reflecting how the market has rallied since last November.

New money

Aside from these refinancing deals, which continue to dominate primary activity, investors took down a big chunk of paper from Truist Insurance this week to support the company’s acquisition by Stone Point and CD&R.

The scarcity of new money deals continued to drive demand, but investors have also grown fond of the steady growth of insurance broker earnings which helped the insurance company drive tight pricing on the first lien debt. This follows last week’s pricing of the largest ever broadly syndicated second lien loan (also the tightest ever price) according to lead arranger Morgan Stanley.

The success of SunSource’s $1.685bn dividend recap deal is another sign of the times — even with a hefty increase in financing costs, lenders were willing to help the company ramp up interest costs to pay owner CD&R a hefty $815m dividend. Ultimately, the scarcity of new supply and company’s strong cash flow and margins trumped any squeamishness over the size of the payout, allowing the timing of the deal to be accelerated and the spread and OID to be tightened.

Weekly supply summary — 11 March-15 March

Source: Table

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