US LevFin Wrap — Primary slows down, Summit earnings drop, Vector plots new course

David Bell

23 August 2024•5 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 $300m tap for Allied Universal was the only HY new issue deal to launch and price in the primary market this week, as the summer slowdown hit high yield and leveraged loan primary markets.

The technical backdrop has continued to improve since the volatility seen earlier this month, which bodes well for demand when the LevFin pipeline opens up after Labor Day. JP Morgan analysts pointed out that high yield funds saw $1.9bn of inflows this week, recouping much of the $2.5bn outflows witnessed over the prior two weeks. Loan fund outflows meanwhile have moderated, with $319m pulled from funds this week after peaking at $3.1bn two weeks ago.

The bank also noted that average high-yield bond yields (7.53%) are at a low since August 2022 and spreads (364bps) are 60bp inside early August’s high, “amid a Goldilocks narrative of growth without inflation”.

Chairman Jerome Powell indicated the Fed’s shift toward supporting the labor market over inflation in comments at Jackson Hole on Friday, saying that the “time has come” for policy adjustments.

Loan yields and spreads (8.33% and 479bp) meanwhile are 12bps and 3bps tighter over the week, and the percentage of loans trading above par has improved to 42% thanks to improving growth sentiment, slower retail outflows, robust CLO generation and the lightest month of primary market activity year-to-date, according to JPM (see chart below).

Our CLO team unpacked the busy summer of deal formation earlier this week, highlighting that $66.7bn of US CLO paper has printed in July and August across all forms of issuance, according to 9fin data. As an aside, we also reported that Chatham Asset Management continues to build out its CLO platform with new hires.

Via 9fin (chart)

Cheap smokes

Earnings and M&A drove some secondary market activity this week, with discount cigarette maker Vector Group announcing a $2.4bn take-private deal with Japanese tobacco conglomerate JT Group, which sparked a five point rally in Vector’s senior secured notes.

A recent spree of M&A activity among casino and gaming companies prompted us to do a deeper dive into the credit outlook for the sector, which is navigating the rise of online and sports betting as well as doubts over the strength of consumer spending.

Patient Square Capital-backed care provider Summit Behavioral Healthcare also reported a dip in Q2 earningsbecause of a drop in veteran referrals as a result of new policy proposals by the US Department of Veterans Affairs, according to 9fin sources.

Here’s some other LevFin-related news in brief, in case you missed:

Kroger sold $10.5bn of IG corporate bonds to fund its merger with Albertsons; the latter’s existing HY debt is expected to be upgraded alongside the IG parent, but the merger is still pending FTC approval
Lenders to software company Pluralsight took ownership of the company, wiping out several billion dollars of equity that sponsor Vista Equity Partners and other investors had put in to the company since its $3.5bn take-private in late 2020
Ride-sharing company Uber was upgraded one notch by S&P to BBB- from BB+; Fitch followed by assigningthe company a BBB rating. Both highlighted the company’s sustained growth in ride sharing and food delivery as well as newer services such as grocery delivery and car rentals
Investor Carl Icahn and his company Icahn Enterprises were charged by the SEC for failing to disclose pledges of the company’s securities as collateral for billions in personal loans; IEP and Icahn agreed to pay $1.5m and $500k in civil penalties to settle the charges
Trade Winds reports that Venture Global’s second LNG export facility appears close to being operational, with several ships congregating near the Placquemines, Louisiana facility. Venture priced a $1.5bn bond deal in July to help fund the buildout, read more on the deal here
Electrode maker GrafTech was downgraded to CCC+ by S&P for its “unsustainable” capital structure. The rating agency estimates that it will burn through its $120m cash balance by the middle of next year and become reliant on its revolver; our distressed debt team reported earlier this month that lenders have formed a co-operation agreement to bind together in any potential negotiations with the company
KKR is in talks with The Parking Spot over a potential $1.4bn acquisition of the car park provider, according to reports
The US Justice Department filed a civil lawsuit against Thoma Bravo-backed software company RealPage, alleging the company used algorithms that enabled landlords to drive rents higher