Article/Intelligence
Leveraged Finance Weekly: Primary Repricing Wave Continues While Investors Are Skeptical of Riskier-Rated Credit
While the primary market continues to be busy with issuers coming to market before its expected slowdown this month, investors are showing discipline, particularly around riskier-rated credits.
Bond issuance was exceptionally strong this week, with $15.2 billion pricing including multiple bonds that were upsized from the initial announcement. Additionally, $22.8 billion of loans priced this week with a further $9.5 billion of loans announced and expected to price in the coming weeks. Meanwhile, high yield had the biggest inflow in three months, increasing to $2.45 billion from $410 million this week, while loan inflows rose to $980 million from $580 million, according to a report by Bank of America.
As market participants have noted that riskier-rated issuers have been aiming to take advantage of an open window in the primary, several offerings with single-B or triple-C ratings in the market struggled to gain momentum among investors this week. For example, First Brands paused its more than $6 billion dollar-equivalent refinancing, as the company seeks to commission a quality of earnings report from an “internationally recognized accounting firm,” Octus reported this week. The Jefferies-led deal was short of book size a day ahead of its original commitment deadline.
In addition, Station Casinos, a hotel and casino operator managed by Red Rock Resorts, pulled its $1.55 billion leveraged loan repricing deal from the market after it struggled to reach book size, Octus reported this week. Others, such as C&S Grocers and U.S. LBM, widened price talk to adjust for buy-side reticence. Specifically, in the case of U.S. LBM, market participants are likely cautious on the current state of the housing market amid a high concentration of spec homes and low remodeling activity, according to Octus’ analysis of the deal.
On the other hand, some deals achieved notable success this week, such as IntraFi, which upsized its first and second lien loans that will fund a dividend. In addition, Duck Creek, a Vista Equity-backed insurance software developer, received strong demand on its $890 million first lien term loan to refinance private debt, Octus reported this week, which enabled the company to replace its structure of first and second lien debt with only first lien debt. The loan is among a number of recent deals that have hit the primary market to refinance private credit debt in the past few months.
Elsewhere, Garrett Motion priced a $690 million loan to reprice its existing debt, Octus reported this week, and investors expressed mixed opinions about Advance Auto Parts’ recent debut in the high-yield market since being downgraded, Octus also reported. Almost half of the bond issuance this week was for unsecured debt, supporting the more risk-on appetite in the current primary markets.
A chart of leveraged loans with commitments due this week can be found below:
Additionally, loans that have yet to price are below:
A chart of high-yield bond issuance this week can be found below:
In the secondary market, traders noted this week that CDK Global continues to struggle, trading in the low 80s. Despite some investors emphasizing that the company has a sticky business, Octus recently reported that investors are concerned about EBITDA and revenue deterioration as well as the impact of a number of lawsuits on the company’s liquidity and outlook.
In addition, sources noted this week that Red Ventures has been topical amid weakened earnings and its downgrade this summer. Elsewhere, Gray TV’s bonds and loans weakened slightly on the news this morning of its purchases with Allen Media Group, though investors say broadcasting paper has otherwise been well bid amid hopes around deregulation. Octus’ recent earnings analysis on Gray Media can be found HERE.
In addition, one trader pointed out that Holley’s loan traded up on the company’s better-than-expected earnings. The trader also highlighted that Petco and Harbor Freight have recovered from tariff weakness, now notably trading at about 94 and 98, respectively.
On Aug. 6, the LSTA Leveraged Loan Index was indicated at 98.99, mostly consistent with the week but down marginally from weeks past.
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:
Octus Covenants’ legal analysts have completed the following analyses of the documentation for new loan transactions: Allied Universal, C&S Wholesale Grocers, Emerald X, Finastra, First Student, Heartland Dental, Liftoff, NielsenIQ, PetSmart, PlayCore, Qnity, Resideo, Sanmina, Surgery Partners, TricorBraun, U.S. LBM and Wash MultiFamily.
Octus’ Private Company Analysis team this past week released reports on companies including Multi-Color, GSM Outdoors, Accelya and Club Car.
Octus Fundamentals Coverage Weekly Update highlights new-issuer coverage in Fundamentals for the syndicated credit universe, alongside transcripts for syndication calls.
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