Actionable Ideas for Companies and Sponsors

Opportunities Remain to Raise Incremental Capital and Extend Existing Maturities Despite Ongoing Market Challenges

Amid volatile market conditions and an unfavorable macroeconomic outlook, issuers should seek market-proven strategies to raise capital and position current debt with short-term maturities through customizable processes. 

Incremental term loans have been the best option for existing loan issuers to raise capital and this trend should continue into 2023. Additionally, due to the lack of new issue supply, incremental financings are being well received with higher clearing original issue discounts (OIDs). 

  • The week of December 12th, Jefferies priced a $425 million non-fungible incremental term loan for First Brands, a performing B2/B+/BB- issuer.
  • First Brands is an automotive aftermarket platform offering solutions for consumable maintenance and mission-critical repair parts under a portfolio of brands.
  • Jefferies was lead arranger in the $425 million incremental First Lien Term Loan, which priced at SOFR+CSA+500, with a 1% floor and an OID of 93.5.
  • The deal was met with strong investor demand and was upsized from $300 million, with all proceeds used as cash to the balance sheet for liquidity, potential future M&A, and growth initiatives.

Related to this trend, CLO demand should remain high in 2023 and fall off in 2024 when approximately 45% of current CLOs will be in their reinvestment period, while 55% will be unable to reinvest in new loans in 2024. Accordingly, issuers should take advantage of the current CLO demand to raise incremental loans for M&A, repay revolvers or general corporate purposes.  

Given the above factors, companies should address their 2024 and 2025 maturities with amend-to-extend deals in 2023, taking advantage of market windows to extend near-term maturities as opposed to hoping the market may rally. While leveraged loans due to mature in 2023 are minimal at around $10 billion, the value of institutional loans maturing over the following three years rises to approximately $300 billion. 

  • In a pertinent transaction from November 2022, Jefferies acted as the sole lead arranger for Vericast Corp.’s $1.1 billion amendment-to-exchange.
  • Vericast is a leading marketing technology and solutions company connecting brands with their ideal customers using unrivaled predictive intelligence and analytics.
  • One of Vericast’s largest debt holders agreed to subordinate its first lien position into second lien, while the remaining first lien lenders agreed to a four-quarter amortization deferral and maturity extension, resulting in 100% participation.
  • The successful transaction provided near-term liquidity for Vericast, while enhancing the covenant package and credit position of debt investors.
  • The transaction also partially refinanced Vericast’s capital structure and improved its first lien leverage and near-term cash flow profile.
Source: Leveraged Commentary & Data (LCD)