Americas Leveraged Finance Weekly: AI Fears Test Primary Market Demand While Participants Wait to Determine Pricing on Software Names

The primary market experienced rocky dealmaking this week after software stocks took a hit from mounting fears of new AI tools disrupting the sector.

After an extremely strong January, just 14 loan deals and five high-yield bonds were announced or priced this week, totaling $13.6 billion and $4.4 billion, respectively.

Inflows improved for loans this week to $1.13 billion from $520 million, while inflows moderated for high-yield to $720 million from $1.23 billion, according to a report by Bank of America.

Leveraged finance market participants said they are reevaluating their overall exposure to software as they consider deals in the pipeline, while also determining fair pricing for certain credits.

“This AI issue is going to be idiosyncratic, company by company, and dependent on what industries those businesses serve,” said Noelle Sisco, portfolio manager at Napier Park. “There will certainly be risk, but with this repricing of risk, we believe there’s potential for investment opportunities, with outcomes driven by underlying fundamentals.”

Notably, disruption from AI fears became apparent this week when a Deutsche Bank-led group was forced to fund a $1.2 billion leveraged loan financing Thoma Bravo-owned Conga’s merger with Pros’ business-to-business unit after it faced lackluster investor demand, Octus reported.

Conga’s loan was expected to price by last week with changes but failed to grab enough buy-side interest as fears of AI affecting the software sector worsened, making it one of the rare hung debt M&A deals in the primary market so far this year.

Meanwhile, EQT-backed veterinary care provider IVC Evidensia pulled its cross-border amend-and-extend loan from the primary market, citing volatility, Octus reported.

Elsewhere in the market, Treehouse Foods priced a $1 billion leveraged loan and $800 million high-yield bond this week with high buy-side demand to finance its $2.9 billion take-private by Investindustrial, Octus reported. Final pricing on the RBC-led loan, downsized by $250 million, came in at SOFR+425 bps and 98.5 OID, and pricing on the Deutsche Bank-led secured notes, upsized by $250 million, came in at 7.75%,

As the wave of repricings continued this week, Howard Hughes priced $500 million of senior notes at 5.875% and $500 million of senior notes at 6.125% to refinance existing debt. One investor pointed to the offering as a closely watched transaction as it is one of Howard Hughes’ first issuances.

Meanwhile in the pipeline, Cable One is preparing to launch a roughly $1 billion high-yield bond deal led by Truist imminently, Octus reported this week. The offering would refinance Cable One’s existing $575 million of unsecured notes due March 2026 as well as finance its roughly $500 million acquisition of Cable One’s remaining 55% equity interest in Mega Broadband.

For more information on potential deal activity, see Octus’ Deal Origination Pipeline.

In the tables and summaries below, we recorded $39 billion of loans and bonds that were announced in the latest week.

Issuance volume year to date for leveraged loans and high-yield bonds is below:

Issuance by Use of Proceeds, Ex-Repricings

Issuance by use of proceeds for both loans and bonds but excluding repricings is shown in the charts below. For year-over-year comparisons, Octus provides data for the last 13 months.

Pricing by Rating

Average spread and coupon for loans and bonds, respectively, by rating band are detailed in the charts below. Because of the limited activity of CCC rated issuance, only the months with issuance are shown.

Pricing by rating category is shown below:

Breakdown by Sector

In the secondary market, the legal software sector is experiencing pressure following Anthropic’s release of tools within Claude Cowork that automate various legal services, potentially disrupting the software-as-a-service industry. Companies such as Consilio, Epiq and Pre-Paid Legal Services have seen declines in their term loans as a result, Octus reported this week.

Market participants say that the software selloff has spurred a rebound in other sectors, such as industrials, or taken the pressure off challenged chemical names. For example, sources said both Tronox and Chemours have rallied in the secondary market this month.

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

Average high-yield bond spreads sit at 297 bps, wider than last week, according to ICE BofA data. The LSTA Leveraged Loan Index was indicated at 97.72, down slightly from weeks prior.

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

• Veracode

Octus Covenants’ analyses of the documentation for new loan transactions can be found HERE.

Octus’ Private Company Analysis recent reports can be found HERE.

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