Americas Leveraged Finance Weekly: Primary Market Muted From Continued Buy-Side Caution; Issuers Restructure AI-Vulnerable Pipeline Deals

Relevant Item:
Leveraged Finance Tracker

The primary market was muted again this week as market participants continued to grapple with AI’s impact on the credit markets and monitored geopolitical developments.

Octus tracked just seven loans and six high yield bonds that announced or sold debt this week – slightly higher than last week – totaling a little over $10 billion in principal.

Uncertainty around the duration of the conflict in Iran and its potential impact on U.S. industries has heightened caution among primary market participants, adding to existing nerves from recent AI-related volatility. Sources said that although there is capital to deploy, many issuers and investors are reluctant to stick their necks out on riskier deals in a somewhat turbulent market and are waiting for more stability.

The cautious investor tone has continued to affect software-related deals in the primary pipeline, prompting some issuers to add high-yield bond tranches alongside loans to broaden the potential investor base, given that the high-yield market is seen as more insulated from sector volatility. Sources said in addition to structure changes, any deal seen as vulnerable to technology disruptions due to AI will need to widen pricing on deals going forward.

“The market has repriced due to the implications from AI, and anyone looking at credit in the software space will take a more conservative price and viewpoint,” said Chris Sweet, managing director and head of capital markets at Portage Point Partners.

“It’s going to be a case-by-case scenario dependent on whether the business can stomach a higher price.”

Between the downward pressure the private credit market is facing along with geopolitical uncertainty with the Iran conflict, the leveraged finance market is slower than people expected, said one leveraged finance banker this week. Feelings in the market are timid right now, the banker added, with participants still in “wait-and-see” mode. “Right now, it’s somewhat hard to get a deal done and be opportunistic,” they added.

In the pipeline, advisors leading Qualtrics’ roughly $5 billion debt financing its acquisition of Press Ganey Forsta are considering options to navigate volatility, including resizing the package to about $3 billion in leveraged loans and $2 billion in high-yield bonds, Octus reported this week.

Given the ongoing market volatility as a result from the software selloff, no definitive decisions for terms or sizing on Qualtrics’ deal have been made. Although some sources said there is demand for the credit in the bond market, others believe the market is still too volatile for software credits to launch.

Though deal activity was mostly quiet in the market, video game developer Electronic Arts held meetings with prospective investors this week for its multibillion-dollar cross-border debt package, with a formal launch expected as soon as next week, Octus reported.

The highly anticipated JPMorgan-led offering financing its $55 billion leveraged buyout is expected to include an upsized $9.5 billion high-yield bond tranche and $6 billion of leveraged loans. Price talk on the unsecured bonds are coming in the mid-8% area, the secured bonds are coming in the low-to-mid-7% area and the loan is coming in at SOFR+350 bps-357 bps and 98.5-99 OID, as reported.

Among the scarce issuance this week, Nexstar launched a $2.75 billion term loan to fund its acquisition of Tegna and refinance existing debt. Price talk on the Bank of America-led loan is coming at SOFR+275 bps-300 bps and 99 OID, with commitments due Wednesday, March 18.

Elsewhere, a Jefferies-led $900 million incremental loan financing Leonard Green & Partners’ $3.1 billion take-private of Mister Car Wash is expected to launch in the primary market imminently, Octus reported this week. Mister Car Wash’s loan has received positive feedback from prospective buy-side participants during the premarketing session and is expected to launch with reverse interest.

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

We recorded $10 billion of loans and bonds that were announced in the last week, as shown in the tables and summaries below.

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 spreads and coupons for loans and bonds, respectively, by ratings 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 ratings category is shown below:

In the secondary market, ION Platform’s debt rebounded slightly after the company said in a series of meetings at the JPMorgan Global Leveraged Finance conference last week that it expects to generate $400 million in free cash flow this year, of which $100 million could be earmarked to pay down debt due 2028, Octus reported.

ION’s euro and dollar-denominated debt has ticked up slightly to 81/84 since last week, up from a low of a high-70s bid context prior to the conference, according to sources. The loans were indicated at 95/96 in late January, according to sources.

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 317 bps, wider than last week, according to ICE BofA data. The LSTA Leveraged Loan Index was indicated today at 97.09, up slightly from last week.

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

• Hubbard Radio LLC
• Rackspace Technology Inc.
• Pathway Vet Alliance
• Innovate Corp.

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.