US LevFin Wrap — Secondary market frenzy, Subway ABS is on a roll, LME hits private credit

Sasha Padbidri

31 May 2024•3 min read

It was a short but action-packed week with plenty of running at the JP Morgan Corporate Challenge in New York City (congrats to those who participated!) and plenty of movement in the LevFin secondary market.

Hertz and Atlas Air were among the companies caught up in this week’s trading activity — Hertz’s senior notes due December 2026 and senior notes due December 2029 declined after American Airlines revealed weakness in domestic revenue on Wednesday, which could impact what demand for Hertz’s rental vehicles look like in the second quarter.

Atlas Air’s senior secured notes due February 2030 also sold off following reports that its cargo partnership with Amazon will end.

Repricing wave swells

Speaking of secondary market activity, it seems that the leveraged loan repricing wave is only getting bigger, given that approximately half of the secondary loan market continues to trade above par.

According to data from Bank of America, 2024 repricing volumes by mid-May surpassed the $197bn seen in 2021’s loan repricing wave. The bank estimates that the year could end with approximately $440bn in loan repricings, bringing it close to the 2017 repricing record of $460bn.

Repricing volume, inclusive of add-ons, stands at $274bn year-to-date, according to 9fin data. We analyzed our loan database to find more potential candidates for repricing — check it out here.

The repricing wave is also being fueled by historically weak new money supply. BofA data indicates that M&A/LBO supply currently stands around $90bn year-to-date, making this the “second weakest pace in history after 2023”. If only Roark Capital had picked the LevFin market over ABS to fund its buyout of Subway — regardless, we still followed up on the blowout demand for its $3.4bn whole business securitization, which is the largest ever deal of its kind.

The lack of new money deals has given borrowers the upper hand in driving tighter pricing on refinancings and repricings. Our data shows that more loans are pricing below S+200bps in 2024 than any of the past three full years. This week alone, three transactions from TransUnion, Calpine and Gen Digital are being offered up at a S+175bps margin.

J. Screwed — the private credit edition

Also this week, a distressed debt maneuver finally made its way into the private credit realm. 9fin broke the news on Thursday that Vista Equity-backed Pluralsight is exploring a debt raise that involves moving a material IP asset to a non-guarantor subsidiary outside its restricted group.

This is an unprecedented move given that private credit evangelists have always lauded stringent credit documents as one of its key strengths. Issuers may want to keep this in mind the next time they stand at the crossroad between private credit and the BSL market.

Before you head off for the weekend, be sure to check out our 9Questions with Bill Zox of Brandywine Global, where he unpacks political risk tied to the upcoming Presidential election and his love for air hockey.