Skip to content

Article/Intelligence

High-Yield Primary Market Activity Heats Up Ahead of FOMC Meeting

Relevant Item:
Excel Download

High-yield primary activity picked up this week ahead of earnings season ramping up, with 10 deals pricing for a total of $5.3 billion, up from five deals valued at $2.975 billion last week. This significant increase in primary market supply appears to have limited the performance of deals in the secondary market. Most of the new deals are currently trading close to their reoffer prices, indicating that new issues may appear fairly priced to market participants.

In terms of economic indicators, June’s personal consumption expenditure, or PCE, inflation data indicated an annualized rate of 2.5%, meeting expectations, while the core rate also aligned with forecasts at 2.6%. Most observers anticipate the Federal Reserve will maintain the federal funds rate between 5.25% and 5.5% during its upcoming meeting on Tuesday, July 30, and Wednesday, July 31.

Credit spreads remain tight, with single-B index spreads at 284 basis points and double-B index spreads at 176 basis points as of this report. The five-year Treasury yield opened July at 4.37% and dropped to a monthly low of 4.07% on July 17, two days after Federal Reserve Chairman Jerome Powell’s comments that the Fed will not wait for inflation to hit 2% before lowering rates. It was recorded at about 4.08% at the time of writing.

The most notable deal to price this week was Wilsonart, a private manufacturer and distributor of decorative engineered surfaces serving North America and Europe, offering $500 million of new senior unsecured notes due in 2032. Proceeds, along with a new $1.06 billion seven-year senior secured term loan facility and $60 million of equity investment from Wilsonart’s sponsor CD&R, are expected to be used to refinance over $1.2 billion of existing term loan indebtedness and fund a $398 million HoldCo distribution to CD&R in order to acquire all outstanding HoldCo equity interests owned by Illinois Tools Works.

The issuance was marketed with a pro forma net leverage of 6.4x, based on a pro forma adjusted EBITDA of $239.8 million and pro forma net debt of $1.537 billion. We noted in our report that a leverage ratio of 6.4x stands out in a sector that is predominantly characterized by lower leverage, while an EBITDA interest coverage ratio of 2.2x is considerably lower than those of its peers. Initial whispers were in the 9.75% to 10% range, however the notes ultimately priced at par to yield 11% on July 25. This was the only deal this week to widen pricing from initial price talk. Reorg’s financial analysis on the deal can be found HERE, and our covenant analysis is HERE.

Trading levels as of the close of trading on the day of issuance, according to Solve, for this week’s new issues are shown below:
 

High-Yield Issuance Summaries

Weekly issuance volumes are shown in the chart below:

Kraken Oil & Gas’ $500 million offering, upsized from $400 million, of five-year senior unsecured notes priced at par to yield 7.625% on Tuesday, July 23, a day after it was announced. Proceeds from the B3/B+ notes will be used to repay borrowings under the company’s revolving credit facility. Reorg’s financial analysis on the deal can be found HERE, and our covenant analysis is HERE.

R.R. Donnelley & Sons initially came to market with $1.5 billion five-year senior secured notes and subsequently changed the terms of deal and is now offering a $1.15 billion dual-tranche notes due in 2029. The updated deal consists of $500 million in B2/B first lien notes and $650 million in B3/B second lien notes. Proceeds from the deal, together with proceeds from a new term loan, will be used to fund the acquisition of Valassis and to repay debt under the company’s term loan and junior lien notes due in 2027 and 2028. Reorg’s financial analysis of the deal is HERE, and our covenant analysis is HERE

Garda World’s $550 million drive-by offering, upsized from $400 million, of eight-year senior unsecured notes priced at par to yield 8.25% on Monday, July 22. Proceeds from the Caa2/CCC+ notes will be used to finance the acquisition of OnSolve and for general corporate purposes. Reorg’s covenant analysis on the deal can be found HERE.

Venture Global LNG priced $1.5 billion of B1/BB senior unsecured notes due January 2030. The notes priced on Wednesday, July 24, at par to yield 7%. Proceeds from the issuance will be used to prepay the company’s Plaquemines equity bridge facility in full, with any remaining proceeds to be used for general corporate purposes. Reorg’s covenant analysis on the deal can be found HERE.

Novolex priced $500 million of B2/B senior secured notes due January 2030. The notes priced on Thursday, July 25, at par to yield 6.875%. Proceeds will be used to repay a portion of the company’s existing first lien term loan. Reorg’s covenant analysis on the deal can be found HERE.

Hightower Holdings’ offering of $400 million Caa2/CCC senior unsecured notes due January 2030 also priced on Wednesday, July 24. The notes priced at par to yield 9.125%. The company will use proceeds for M&A and general corporate purposes. Reorg’s covenant analysis on the deal can be found HERE.

Weekly issuance volumes are shown in the chart below:
 

The high-yield index by rating category is shown in the chart below:
 

This week’s high-yield primary activity is shown in the chart below:
 

 

(Click HERE to enlarge.)

Covenant Loan Coverage

In the primary loan markets, we completed loan document reviews of the term sheets and draft credit agreements for Acuren, Apex Group, Austin Powder, BBB Industries, Edgewater, Geosyntec, MJH Life Sciences, Perficient, R.R. Donnelley & Sons, Refresco and Varsity Brands.

To see our analyses of these documents or to talk to one of our legal analysts, click HERE. You can access an analysis if you have a copy of the applicable credit agreement.