US LevFin Wrap — Tight loan spreads, Tropicana gets juiced by sponsor

Sasha Padbidri
+David Bell
+ 1 more

29 November 2024•4 min read

This is our weekly newsletter on all the latest trends, breaking news, and deep-dive coverage in European leveraged finance. Explore all our market wraps here.

We hope you were able to avoid politics, religion and interrogation about your personal life at the Thanksgiving table. If not, here are some talking points about the state of leveraged finance to spice up the conversation at your next family gathering:

1. Spreads are tight, spreads are right

Leveraged loan spreads hit 442bps on 27 November, the lowest since May 2022, according to JP Morgan data. That was fueled by wave of loan refinancing and repricing activity in the leveraged finance primary pipeline as issuers rush to lock in cheaper funding before the year ends.

More than $35.9bn worth of such deals launched at the start of the week, as we reported here, including a loan repricing transaction from Penn Entertainment, which is tapping the market for the first time since partnering with ESPN to build an online sports betting app.

“Obviously there’s a lot of bid for risk out there in all markets, but specifically in the loan market you’ve still got a dearth of true new issuance and a lot of CLOs being printed. That combination just keeps on driving spreads tighter,” said Jeremy Burton, US high yield and leveraged loan portfolio manager at PineBridge Investments.

Speaking of true new issuance, we’ve got at least two deals in the works — JP Morgan and Goldman Sachs are planning to syndicate a $2bn+ financing for Protective Industrial Products’ carve out of Honeywell’s Personal Protective Equipment business. Jefferies is also preparing a $2bn bond deal to fund the acquisition of Neiman Marcus by the parent company of Saks Fifth Avenue — check out our reporting here.

November supply, via 9fin screeners for bond and loans (chart)

2. Tale of two retailers

All eyes were on Michaels Stores and Kohl’s this week, and not just because of Black Friday sales.

Michaels, which is backed by Apollo, released interim earnings figures this week showing a slight dip in third quarter adjusted EBITDA. Meanwhile, Kohl’s third quarter earnings were more disappointing, with management guiding for a bigger than expected net sales decline for FY 2024.

There’s also the news that Michaels’ current CEO Ashley Buchanan will be taking over as Kohl’s CEO in January, making him its third chief since 2018.

3. Tropicana gets some juice from sponsor PAI Partners

9fin reported that Tropicana drew a $56.5m loan with a four-month maturity from sponsor PAI Partners that is pari passu with its existing term loan B due 2029.

The company also released a financial statement ahead of its third quarter earnings in mid-December, where it reported a 4% year-over-year decline in net sales and a 9% YoY drop in gross margin, sources said.

Both our LevFin and distressed team have reported extensively on this name — check out our coverage here and get a quick company overview through our Distressed Pitch List report.

4. We’re still in ‘wait and see’ mode on Trump tariffs

Earlier this week, US president-elect Donald Trump pledged to impose tariffs on Mexico, Canada and China. This includes 25% tariffs on goods coming from Mexico and Canada, and a further 10% on goods coming from China.

While companies with exposure to international manufacturing supply chains could get squeezed on margins and pricing power, no names in the secondary market moved dramatically based off tariff talk, sources said.

Trump could change his mind, so how leveraged credits hold up in the face of the new administration’s trade policy remains to be seen.

“We’ve seen him use tariffs as a threat from the bully pulpit. I think that the bark tends to be a little bit louder than the bite, particularly in regards to Mexico and Canada,” said an industrials analyst. “The unknown really is what he says versus what he actually means.”