Leveraged Finance Weekly: A Hot Summer for Primary Market Shows Signs of Cooling

The primary market cooled this week as issuance is expected to lag through the end of August and into the Labor Day holiday. Flows turned negative for high yield to $630 million, from $1.58 billion in inflows last week, the biggest outflow in four months, according to a report by Bank of America this week. Inflows meanwhile held steady for loans at $650 million from $640 million.

Market participants said this week that it’s been a particularly busy summer, especially with regards to repricings, and they are welcoming the upcoming respite.

“It’s common to see more troubled credits coming at the end of a really aggressive repricing wave, like the one we’ve had,” said Jim Schaeffer, head of U.S. leveraged finance & global CLOs at Aegon Asset Management, on cuspier credits taking advantage of a hot market. “Investors are tired now of all the repricings and don’t have as much capacity for them – it makes sense we’re seeing more lenders push back on that.”

Among notable primary activity, Thoma Bravo is financing its $12.3 billion take-private of HR software developer Dayforce with a $6 billion leveraged loan package, Octus reported this week. Dayforce’s deal, led by Goldman Sachs, consists of roughly $5.5 billion in term loans and a $500 million revolver, with price whispers on the loan coming in the SOFR+300 bps area, as reported. The deal is expected to launch following the upcoming Labor Day holiday.

Amid strong market conditions heading into the latter half of the year, several issuers with existing private credit debt have opted to tap the broadly syndicated loan market to refinance at lower margins, Octus reported this week. Recent deals refinancing private debt credit, such as Finastra, Duck Creek and Cooper Machinery, have attracted notable buyside interest – and market participants say this trend will only continue.

In the secondary market, traders flagged that KIK Consumer Products’ secured debt remained active towards the end of this week following a sharp drop after the company told investors on its second-quarter earnings call that it is evaluating its capital structure given the downward pressure on its liquidity.

KIK’s $550 million 8.25% secured notes due in 2031 traded in size at 78, compared with trades as low as 74 on Aug. 20 and 84.5 at the beginning of the week, according to TRACE. Its $925 million SOFR+400 bps term loan due in 2031 traded in the mid- to high-70s late this week from the low 80s on Aug. 18, according to sources. The Centerbridge-owned pool product manufacturer has also tapped a counsel, as reported.

In addition, traders noted that Vibrantz and Leslie’s continue to be topical.

On Aug. 21, the LSTA Leveraged Loan Index was indicated at 98.94, a slight uptick over the week.

Top daily loan decliners and risers can be found in Octus’ Credit Cloud. A search for the largest bond decliners is HERE.

Moody’s Ratings and S&P Global Ratings downgraded the following companies to CCC this week:
 

• Symplr Software Intermediate Holdings Inc.
   
• Checkers
   
• Merlin Entertainments Group
   
• Newfold Digital Holdings Group
   
• Medical Depot Holdings Inc.
   
• Claros Mortgage Trust Inc.
   
• Fossil Group
   
• Spirit Airlines Inc.
   

Octus Covenants’ legal analysts have completed the following analyses of the documentation for new loan transactions: WarHorse Gaming.

Octus’ Private Company Analysis team this past week released reports on companies including Intertape Polymer, SI Group and Sympler Software.

Octus Fundamentals Coverage Weekly Update highlights new-issuer coverage in Fundamentals for the syndicated credit universe, alongside transcripts for syndication calls.