Americas Leveraged Finance Weekly: Issuance Slows Slightly This Week Amid Holiday; Investors Push Back as Deal Supply Increases

In the week ended Oct. 16, the primary markets took somewhat of a pause as U.S. bond markets were closed on Oct. 13 for the holiday. Octus tracked five loans and five bonds that came to market or priced this week, a slowdown from prior weeks. High-yield bond issuance outpaced loans with $2.3 billion of loans announced or priced as compared with $5.4 billion of bonds.

However, market participants report that the primary markets remain open with a continued solid amount of refinancings and new issuance. Market participants have welcomed the recent uptick in deal activity, although they cautioned that the increasing supply may lead to some “indigestion” among investors. Both high-yield and leveraged loans had the biggest outflow this week in the last six months, according to a report by Bank of America.

“High-yield likely has less risk compared to other asset classes,” said Nick Losey, portfolio manager and managing director at Barrow Hanley Global Investors, about relative value in the high-yield bond and leveraged loan markets. “Loans have a little bit more risk, definitely more credit risk, but I think you’re still in a pretty good return versus risk.”

Of notable primary market activity this week, TeraWulf launched a $3.2 billion high-yield bond fully on reverse interest to fund its data center expansion, Octus reported this week. Pricing on the Morgan Stanley-led five-year senior secured amortizing note came at 7.75%.

Elsewhere, Calabrio struggled to fill books for the $1.5 billion leveraged loan financing Thoma Bravo’s merger of the business with Verint Systems. The commitment deadline for the Santander-led deal was pushed back to today, with investors flagging concerns regarding threats that AI poses on the call center industry.

In recent weeks, investors have highlighted the impact AI is having on tech and software companies tapping the primary market, cautioning that AI is both an opportunity and a threat with new issuance. The secondary market has likewise seen an “AI trade-off,” as the market preemptively reacts to companies that have the potential to be disrupted by AI, such as those in the business services communications sector, investors said.

In addition, investors looking at parking lot AI services developer Metropolis Technologies’ $1.1 billion loan refinancing its private debt were skeptical about participating in the deal considering its niche sector along with questionable EBITDA figures, Octus reported this week. Commitments were due this week on the JPMorgan-led loan, which was being talked at SOFR+425 bps-450 bps and 99 OID. Investors said in the report they expect that Metropolis’ loan price will widen to SOFR+500 bps to reach deal size.

Market participants have also noted recently that supply is outpacing demand, causing investors to push back more and issuers to delay unpopular deals, Octus reported this week.

Within the last month, pharmaceutical company Mallinckrodt-Endo pulled its $1.5 billion loan, while chemical producer Nouryon did the same with its dual-currency $5.8 billion loan. Both deals were in the primary to refinance debt but did not receive enough investor demand to cross the finish line.

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

In the tables and summaries below, generated with the assistance of AI, we recorded $7.7 billion of new issuance across 10 deals 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

The following charts show issuance by use of proceeds for both loans and bonds but excluding repricings. Debt earmarked for leveraged buyouts and M&A have increased as a share of total loan issuance in September compared with the prior two months.

Pricing by Rating

The following charts detail average spread and coupon for loans and bonds, respectively, by rating band. 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

By sector, financials and utilities led the way for new issuance across loans and bonds.

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

The LSTA Leveraged Loan Index was last indicated at 98.94, down slightly from weeks past. Average high-yield bond spreads sit at 304 bps as of Oct. 16.

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:

• Cano Health Inc.
• Vivid Seats

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.