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The last push to print deals before the holidays generated some big headline numbers in the leveraged loan market this week, with Monday’s $57bn of loan launches marking the busiest day of the year in the primary market, according to 9fin data.
Most of these were repricing exercises with little or no new money involved, so it’s a little less fizzy than the headline figure suggests, though there are some signs that investors are getting a little swamped with the amount of deals hitting the tape.
An aggressive attempt by Platinum Equity to cut as much as 150bps from the spread on a loan at power generator company Rehlko (formerly Kohler Energy) saw some pushback for example, with leads revising price talk on Friday to SOFR+375bps. The loan was initially talked at SOFR+325bps-350bps. Platinum only just carved the company out of former parent Kohler Co in May after raising financing in January. Still, the 100bps price cut is bigger than most borrowers have attempted lately.
“It’s a record week in the market and investors are starting starting to seem a little overwhelmed with everything they’re being asked to process,” said a banker. “The new deals seem to be overwhelming the system. I wouldn’t be surprised if some of these cuspier ones get pushback.”
Meanwhile another Platinum Equity-backed company — industrial manufacturer Husky Technologies — cut 50bps from a $1.746bn term loan B due 2029 that was previously priced at SOFR+450bps. This comes after its Q3 earnings report showed flat year over year revenue but a 7% YoY increase in EBITDA.
Canadian facilities management business BGIS, which is owned by CCMP Capital Advisors, is also looking to trim 50bps from a loan it issued in February after pulling a refinancing effort during a bout of volatility in October 2023.
10 biggest loan repricings in the market this week, via 9fin loan screener (chart)
The technical factors that are driving this activity remain in place — more than 68% of the loan market is trading above par, according to JP Morgan data, with loan funds reporting 11 consecutive weeks of inflows totaling $9.6bn. Meanwhile the supply side has yet to see a significant increase in M&A activity. And as we outlined in the November edition of our US LevFin Review this week, the record amount of loans that were repriced in May this year are now exiting their six month call protection.
Similar factors are supporting the bond market, which has seen $11.6bn of inflows over the past 16 weeks. Overall yields still remain attractive to investors but HY spreads are now just 266bps, the lowest they’ve been since 2007 (shout out to FRED for the data).
Investors say this is partly down to a sea change in demand for the asset class.
“High yield inflows in 2024, even with low credit spreads, are comparable to 2020 when credit spreads were well above average for much of the year,” said Bill Zox, high yield portfolio manager at Brandywine Global. “That suggests these allocations are strategic rather than tactical. Credit is now the core and sovereign bonds have moved to the periphery, a shift we expect to support high yield in 2025.”
Bond supply however has been muted as issuers and sponsors favor floating rate debt that can quickly be repriced as spreads tighten and rates drop. About $5bn of HY debt priced this week, less than the $10bn priced in the whole of November — the slowest month since July 2023, according to 9fin data.
Apollo’s financing for its buyout of aerospace parts manufacturer Barnes Group was on the radar for investors this week. Buysiders we spoke to were positive on the deal, which should benefit from demand for aircraft maintenance as average fleets in the industry get older.
Commitments on the seven-year $1.35bn TLB have been accelerated one day to 10 December, with $750m of other secured debt also expected to hit the market to fund the buyout.
Apollo is also looking to fund its acquisition of The Travel Corporation, a travel company that’s been privately held by the Tollman family for over a century. The deal, which is seen as a bet on demand for group tours, will be funded with a $650m TLB due 2031. Commitments are due 16 December.
Private education company Nord Anglia got a decent reception for its $500m TLB, with bankers accelerating commitments and tightening the pricing on the deal to the tight end of IPTs at 325bps over SOFR and par. The financing is part of the company’s equity recapitalization with new minority investment under owners EQT andCPP Investments, and was one of several cross-border deals tapping a strong dollar debt market.
AmSpec continued the trend of borrowers pivoting from private credit facilities to cheaper BSL financing; the TPG-backed environmental testing provider could lower its borrowing costs by as much as 125bps if final pricing remains at 425bps. Commits are due 11 December.
Hertz meanwhile priced a $500m tap of its existing 12.625% SSNs due 2029 at 107.73 to yield 10%, earning the SSNs a one notch downgrade to B from S&P on account of the additional secured debt in the cap structure. Read our take on the deal here.
On the move
Petco Healthreported upbeat Q3 earnings on Thursday night highlighted by a 13% increase in EBITDA and the strong performance of its vet services business. The earnings provide a curtain raiser for PetSmart, which reports earnings privately on 10 December.
9fin’s credit analysts also took a look at natural gas producers such as Comstock Resources, which could benefit from potential upheaval in the energy market and demand for US exports under a Trump presidency.
Bonds issued by packaging company Pactiv Evergreen rallied a couple points this week on reports that Apollo-backed Novolex was exploring a bid for the company. The 4.375% SSN due 2028 jumped from 95 at the start of the week to 97 for a yield-to-worst of 5.2%.
E.W. Scripps meanwhile is one to watch, as the company is considering its refinancing options, according to 9fin sources.
