US LevFin Wrap — Remember 5th of November, primary pipeline cools, hurricanes haunt Q3 earnings

Sasha Padbidri
+William Hoffman
+ 1 more

1 November 2024•4 min read

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We may have said goodbye to Halloween, but this November is already shaping up to be more trick than treat.

For starters, we’re just a few short days away from Election Day. Unsurprisingly, activity in the leveraged finance primary market has slowed down as we await the election of the new president.

The divergence in both candidates’ goals means that certain industries, particularly the energy sector, would be more impacted than others.

“A Harris win is a continuation of the current Biden administration in many ways. During the Biden era there's been a large increase in drilling and US oil production is at the near-term highs,” said George Goncalves, head of US macro strategy at MUFG Securities Americas. “Trump vows to take that even further so I think that would likely result in lower energy prices and that would impact the energy sector.”

Contributing to the somber mood are the tepid numbers from the Bureau of Labor Statistics’ October job report. This recent report is especially important as it is the final update on the state of the US economy ahead of 5 November.

The report shows that the US only added 12,000 jobs in October, representing the lowest monthly job gain since December 2020. Employment metrics were also impacted by Hurricanes Milton and Helene (more on that later), the report states.

Loan pushback

Despite the election jitters, the primary market wasn’t completely empty. In leveraged loan land, repricings are still king with few new money deals on offer.

But just because the pipeline is thinner doesn’t mean investors are less picky. Nutrition company 1440 Foods’ loan offering, which funds its acquisition of FitCrunch, received pushback earlier this week as investors remain concerned about oversaturation in the protein bar category.

Product concentration was another reason for pushback on a $585m TLB that funds biotech company Therakos’ leveraged buyout by CVC. The loan was initially offered at SOFR+500bps-525bps with a 98-99 OID, but ended up pricing on the wider end of guidance with a 96 OID.

“It’s an incredibly sophisticated offering but one line accounts for almost 90% of its revenue,” said a buysider.

Meanwhile in high-yield bonds, several drive-by issuers showed up later in the week after no new bond deals were launched on Monday.

Newell Brands was one of these issuers — the consumer goods company took advantage of the promising success of its revamped sales strategy to refinance $1.25bn of bonds coming due in 2025, while Canadian private security firm GardaWorld printed $1bn of unsecured notes to fund its acquisition of Stealth Monitoring.

Personal loan company OneMain Financial also served up a slug of unsecured notes that priced at 6.625% as it plans to call its more expensive 9% SUNs due 2029 next year.

For the forward pipeline, baked goods maker Hometown Food Company is working with Capital One to raise loan debt to pay out a dividend to sponsor Brynwood Partners. We also reported that broadcaster E.W. Scrippsmoved up its Q3 earnings release date to 4 November from 8 November as it gets ready to refinance some of its debt by year-end.

We’ve got more details on what to expect in the primary market in the coming months here.

In the secondary market, footwear company Crocs’ debt trading levels held firm but its stock closed down 19% on 29 October after it slashed guidance on its loafer brand HEYDUDE.

Insurance company The Baldwin Group’s debt also held firm after Blue Orca called it out for “inflated metrics” in a 30 October report, but its SSNs due 2031 have since traded down by roughly one point.

Hurricane watch

Although we’ve already reported on the initial impact the hurricanes have had on leveraged credits directly in the path of the storms, many other companies are starting to reveal the actual extent of the damage these hurricanes have had on their Q3 earnings.

Notably, printing company Xerox’s bonds dipped following a bigger than expected decline in its equipment sales revenue, which the company said was impacted by Hurricane Helene hitting one of its top sales regions.

Hurricane Helene also forced Baxter International’s North Carolina plant to shut down operations, causing a national IV fluid shortage. This also had consequences for dialysis services provider DaVita Healthcare Partners’ Q3 results — read more about that here.

In light of how the hurricanes have impacted so many LevFin borrowers, we sat down with catastrophe modeling expert Karen Clark of Karen Clark & Co, to unpack the financial and human cost of these natural disasters. Check it out on Cloud 9fin here.