QualTek dowsized, price trimmed; Investor sees migration toward quality

By Paul A. Harris

Portland, Ore., Oct. 1 – In Tuesday's leveraged loan market, QualTek USA LLC downsized its fungible add-on senior secured covenant-lite term loan B due July 18, 2025 (B3/B) to $100 million from $150 million, while at the same time Brightstar Capital Partners will contribute $25 million in the form of preferred equity.

A pricing update confirmed previous spread talk at Libor plus 625 basis points atop a 1% Libor floor.

Discount talk set the reoffer price at 98, the cheap end of the 98 to 99 price talk.

QualTek inhabits the mid-single B credit sector that has generally been an underperformer since the market regained its feet following the selloff during the fourth quarter of 2018, a portfolio manager said on Tuesday.

Favoring high quality loans

In a loan market that has posted 6.79% overall returns in 2019 to date, double B loans have returned 7.82%, 103 bps greater than the composite, the investor said, citing the S&P loan index.

Single B loans, meanwhile, have returned 6.73%, just six bps below the composite but 109 bps below double B loans.

Triple C loan paper has returned just 1.99% year to date, the investor said.

There is some understandable risk aversion at play in these numbers, the source said.

On Tuesday the U.S. manufacturing purchasing managers’ index from the Institute for Supply Management (ISM) came in at its lowest since June 2009, contracting for the second consecutive month.

That news set stock markets tumbling, and sparked a dramatic rally in Treasuries, with the yield of 10-year government paper falling to 1.64% from 1.78% in minutes, on Tuesday morning when the ISM numbers were released.

“People are nervous, but not that nervous,” the investor said.

“The energetic force of the Trump tax cut has now worked its way through the U.S. economy, and people could use some good news.

“But people have overdone it on the cautious side,” the investor asserted, adding that while global manufacturing is in recession, the U.S. economy is not expected to go into recession in 2019 or 2020.

The deals

In Tuesday primary market action Alliant Holdings Intermediate LLC talked a $115 million incremental term loan B-2 due May 2025 (B2/B) with a 325 bps spread to Libor, a 0% Libor floor at 98.5.

Commitments are due noon ET on Thursday.

Syncsort Inc. plans to roll out $825 million of loans in three tranches at a Thursday bank meeting.

The deal includes a $125 million upsized revolving credit facility due Aug. 16, 2022, a $600 million incremental first-lien term loan due Aug. 16, 2024, and a $100 million incremental second-lien term loan due Aug. 15, 2025.

ProQuest LLC plans to launch a $725 million first lien term loan B at a lender meeting on Thursday.

And InnovaCare plans to launch a $550 million seven-year covenant-lite first-lien term loan (expected ratings B1/B+) on Wednesday.

Monday outflows

The daily cash flows of the dedicated bank loan funds were negative on Monday, the most recent session for which data was available at press time, according to a market source.

Bank loan ETFs sustained $10 million of outflows on the day.

Actively managed loan funds saw $35 million of outflows on Monday, the source said.

The combined funds are tracking $283 million of net outflows for the week that will conclude at Wednesday's close, the source added.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.