Private equity firm Sycamore Partners is taking inspiration from its 2017 acquisition of office supply company Staples in structuring a new buyout financing for its up to US$23.7bn acquisition of struggling retailer Walgreens Boots Alliance. The more than US$18bn financing includes multiple facilities and is the largest leveraged loan buyout financing since the global financial crisis and is designed to allow Sycamore to spin off portions of the business in the future. Sycamore’s move allows it to maximise demand by tapping private credit and the broadly syndicated loan market. The financing may serve as a model for large leveraged buyouts as market participants hope the deregulation promised by the new US administration will bode well for an increase in merger and acquisition activity. “If you use a combination [of private and public debt], it boils down to having flexibility and access to the markets at the right price,” said an analyst who covers Walgreens. Sycamore has lined up financing from banks and direct lenders, with dealers committing to a US$5bn senior secured asset-based revolving credit facility, an US$850m senior secured asset-based RCF, a US$2.25bn senior secured term loan facility, and a US$2bn senior secured bridge facility. Banks are providing a US$1bn receivables purchase facility, a US$2bn senior secured bridge facility and a US$577m real estate financing secured by property. Direct lenders have committed to a US$2.5bn senior secured first-in, last-out term loan facility, a US$100m senior secured cashflow RCF and a US$2.5bn senior secured term loan facility. Slice & dice After its 2017 acquisition of Staples, Sycamore split the company into three: the delivery business, US retail and Canadian retail. A US$2.9bn term loan backed the spinoff of the delivery unit. The rest of the transaction was backed by a US$1bn bond offering, a US$1.3bn ABL facility and a US$1.6bn bridge loan. The Walgreens financing is also divided into different facilities for its three main businesses: international, primarily UK pharmacy chain Boots and Walgreens' pharmaceutical wholesale operation in Germany; the US retail pharmacy business; and US healthcare, which includes hospital pharmacy company Shields Health Solutions. Walgreens has flirted with private equity ownership in the past but has been weighed down by a heavy debt load and more recently by billions of dollars of US opioid-related settlement expenses. The company has US$9.5bn in outstanding debt, US$23bn in operating lease obligations, approximately US$7bn in opioid-related claims and settlements, and US$364m of negative cashflow for the 2024 fiscal year, according to a March 7 Morgan Stanley report. With no clear solution for the conglomerate, the different financings will allow the company to address challenges at its three entities and set the path for asset sales. “Sycamore is buying this because they see a lot of value in a broken-up entity so the financing is set up to create ultimate optionality for them. They may wake up and say, ‘I’d like to keep this or that unit',” an investor involved in the financing said. According to a leveraged finance banker, Shields will be supported by private credit financing, the international segment will be backed by a syndicated bank loan, and the US retail business will rely on asset-based lending. “The US retail pharmacy business is where the majority of the opioid liabilities really sit,” the banker said. “They also have rent expenses and a very large borrowing base, which makes financing less desirable. So the most optimal way to finance that business was through leveraging its assets – over US$10bn in receivables and inventory. That makes for a very large, attractive ABL and other asset-backed financing for that entity.” Across the aisle The Walgreens take-private demonstrates how the private credit and broadly syndicated loan markets can work togeth

European credit markets are trading at a premium to the US for the first time in more than three years as investors have scooped up European corporate bonds and dumped US debt following a stark divergence in outlook for the two regions. Investors now demand an extra 90bp of yield to hold euro investment-grade corporate bonds over ultrasafe government securities, according to ICE BofA corporate bond indices, compared to 97bp in the US. That has flipped a long-held dynamic in corporate credit markets. In early December, US credit spreads traded at 25bp below Europe. Investors have scrambled to hedge exposures to weakening US credit markets as the economic outlook deteriorates, pushing US credit default swap index trading volumes to their highest levels since the outbreak of the Covid-19 pandemic in early 2020. In Europe, meanwhile, Germany’s shock announcement that it would spend nearly €1trn on defence and infrastructure has ignited growth expectations on the continent and buoyed markets. “The big topic of the moment is the outperformance of Europe versus the US," said Finbar Cooke, co-head of European credit trading at Barclays. "It’s very bifurcated. Political uncertainty around tariffs has had a real impact in the US, whereas Europe has had this once-in-a-generation boost in German spending. There’s a lot of tailwinds in Europe and a lot of headwinds in the US." The twin shocks in recent weeks of the Trump administration’s yo-yoing tariff policies and Europe’s newfound fiscal largesse have roiled markets. The S&P 500 has fallen into correction territory after declining more than 10% from its February highs as economists have slashed growth forecasts in response to US tariff plans. The Stoxx Europe 600 index, by contrast, is up more than 7% this year. Hedging the downside Moves in corporate bond markets haven’t been as dramatic, but US investment-grade credit spreads have still widened nearly 20bp from their February lows to levels last seen in September. Many investors have turned to derivatives to protect themselves against further weakening. About US$312bn of US CDS indices tracking investment-grade and high-yield credit changed hands last week, according to DTCC data collated by ISDA. That makes it the third busiest week on record, with only the period around the outbreak of the pandemic in 2020 seeing more activity. Traders say there has also been a steep rise in hedging using other instruments such as options on exchange-traded funds. “Hedging activity is definitely picking up in credit derivative indices and ETFs,” said Andrew Sheets, global head of corporate credit research at Morgan Stanley. “We think hedging still makes sense here because there’s fundamental downside risk. You have a weaker growth outlook in the US and the potential that central bank support will be less willing to arrive. Both of those things are currently in play – and that absolutely matters to credit." The outlook could hardly be more different in Europe, where economists are raising growth forecasts in response to Germany's plans to increase spending dramatically. Germany's 10-year yield has risen more than 40bp to 2.90% since Berlin's announcement – a move that has made European corporate bonds look more attractive for investors as they can earn a higher yield for owning these securities. Investors have poured US$20.4bn into euro investment-grade credit funds this year, Bank of America said in a report on Friday, suggesting they are betting on brighter prospects in the region. Can it last? Not everyone is convinced Europe's winning streak will endure. The potential for tariffs to weigh on growth could yet dent the local economy. It's also unclear what impact a US economic slowdown would have on Europe. "The question is: if US credit markets price in a recession or slowdown, can Europe be immune from that, and at what stage does it become a European risk-off

A sombre outlook for the US economy is encouraging investors to ditch bets on the US dollar, one of the most prominent consensus trades since Donald Trump’s reelection as US president in November, while tentatively embracing the euro amid a brightening growth picture across the Atlantic. A broad-based gauge of foreign exchange market positioning shows investors are slightly bearish on the US dollar for the first time since October, according to BNP Paribas, as uncertainty over tariffs starts to dent growth expectations for the world's largest economy. Bank of America strategists said bullish greenback bets have been cut by about 40% this year, with investors selling all the US dollars that were bought in the fourth quarter around the time of Trump's election win. That comes as investors have begun unwinding negative euro wagers in anticipation of a reversal in fortunes for the beaten-down single currency following Germany's shock announcement that it plans to increase spending by almost €1trn in the coming years. The news from Germany has driven the sharpest jump ever in euro positioning in BofA's client survey on rates and FX market sentiment, the bank said on Friday. “We’ve seen a huge unwinding of these long dollar positions,” said Francesco Pesole, FX strategist at ING. “Sentiment within the FX market has definitely shifted from the long dollar trade, which was previously justified by the notion of the US remaining relatively strong compared to the rest of the world, to Europe." Betting on a stronger US dollar had been a favourite "Trump trade" given expectations of looser regulations and fiscal policy. Citigroup said hedge funds bought US dollars from the bank for 19 consecutive trading days from October 2 in the run-up to Trump's victory on November 5, the most consistent period of hedge funds buying US dollars the bank has ever seen. The US Dollar Index hit its highest point in more than two years in mid-January but has since slid nearly 6% to levels last seen around election day. That slump has coincided with mounting concerns among investors about the effect of Trump's tariff plans on the US economy and a sharp downturn in US stock markets. Goldman Sachs recently lowered its US growth projections for 2025 from 2.4% at the beginning of the year to 1.7% following another round of tariff policy whipsawing from the president. That included Trump threatening 50% tariffs on Canadian steel and aluminium – only to walk that back a matter of hours later – and escalating trade tensions with the European Union. “The market has bought hook, line and sinker into the idea that all of this tariff talk and the sheer pace of policy change coming from the US is going to hurt economic growth,” said Kit Juckes, chief global FX strategist at Societe Generale. “The market is seeing all this news and is interpreting it as something that is going to significantly change [the] growth trajectory for the US given volatile policymaking.” MEGA Those growth expectations contrast sharply with improving investor sentiment on Europe following German chancellor-elect Friedrich Merz declaring Europe would do “whatever it takes” to beef up its defence and infrastructure spending. The potential €1trn in increased fiscal stimulus over the coming years should lead to “significantly more growth”, according to economists at Morgan Stanley, who projected it would increase German GDP by 70bp in 2026. The single currency has rallied in response to this newfound optimism. After flirting with parity against the US dollar earlier this year, the euro is now up 6.5% since its mid-January low to about US$1.09. BNPP's broad-based FX market gauge suggests investors have been unwinding their negative euro bets and that options traders are now long the currency. Despite this bounce, analysts say investors haven't yet reached peak euro exposure as they wait and see whether

Canada's deteriorating relations with the US didn't deter investors from jumping into the sovereign's annual US dollar issuance on Tuesday, with the deal seeing record demand even as US president Donald Trump threatened to tighten the screws with further tariffs. An hour before the syndicated bond priced, Trump announced he would double levies on Canadian steel and aluminium imports to 50% in the latest clash of a trade war that the president has fomented since he returned to the White House in January. He rowed back on that threat hours later, though the initial 25% rate still took effect on Wednesday. Canada subsequently retaliated with its own measures against US goods. While the headlines make life tough for economists and analysts, bond investors have become acclimatised to Trump's volatile nature, said a banker away from Canada's deal, with issuers still able to clear deals in the US dollar market despite the risks. Canada (Aaa/AAA/AA+), moreover, is one of the highest-rated sovereigns in the world, with even better ratings than the US. "Whatever noise there is in the press, Canada is an extremely strong country with obvious institutional strength," said a lead banker. Its status meant that neither a weaker market tone nor the tariff tantrums stopped Canada from scoring its largest US dollar order book yet, according to IFR data, with demand reaching US$13.9bn thanks to a yield of 4.075%. The scale of demand supported a US$3.5bn five-year issuance via BMO, Barclays, CIBC, JP Morgan and RBC, which landed at 11bp over Treasuries, 3bp inside initial price thoughts. That looked tight on a relative value basis – the five-year point of one of the US dollar market's best-followed SSAs, the European Investment Bank, was trading around 17bp over Treasuries on the day of the deal, according to LSEG data. "Its business as usual for them," the lead said. "They borrow US dollars for their foreign exchange reserves." Canada has done one US dollar benchmark, always a five-year, nearly every year since 2020. The only exception was 2022. Canada's regular issuance in the currency was one reason it got the demand it did, the lead said. "Everybody knows they're coming; they like the name; you know you can roll over your investment." Despite the noise, the country is in a relatively solid position, said BeiChen Lin, head of Canadian strategy at Russell Investments. “We do think recession risks in Canada are elevated," Lin said. "But if a recession does materialise, the Bank of Canada may actually cut rates aggressively to bolster the economy. For that reason, government bonds could be a powerful diversifying investment." Lin also said Canada's fiscal position inspires confidence. "Canada’s debt-to-GDP ratio stood at 32% in the third quarter of 2024, lower than that of several of its G7 peers." Not everyone, though, is as positive about Canada's situation. "Trade wars require fiscal loosening – and that’s bad for bonds," said Malin Rosengren, a portfolio manager at RBC BlueBay Asset Management. Resolving Canada's dispute with the US will be at the top of former Bank of England governor Mark Carney's in-tray after he is sworn in as prime minister on Friday to replace Justin Trudeau.

The Trump administration’s plans to shake up a key US agency leave an uncertain outlook over sovereign debt-for-development swaps after a record 2024. But a revised mandate for the US International Development Finance Corp could broaden the market while moving the agency away from the nature conservation deals it has enabled previously. The DFC has been a pivotal player in the emergence of the sovereign DFD market. Its political risk insurance has enabled the bulk of completed deals, including those for Belize, El Salvador, Ecuador and Gabon. “Obviously, DFC hitherto has done some incredible work. Whatever happens in terms of their priorities, the experience and learning that has come from those deals will always be an anchor to future transactions,” said Deborah Zandstra, head of sovereign debt advisory and restructuring at law firm Clifford Chance. “The most likely outcome is that they will continue to support these types of transactions. But there may be differences in their priorities,” said a source with experience of deals involving DFC. Some market participants expect a recast DFC to focus on deals in which sovereigns would apply swap savings to novel areas that the administration sees as better aligned with US strategic interests, which could include infrastructure, energy and food security. The agency highlights these as its top sector priorities. At the same time, the administration – which in January published a “Putting America First In International Environmental Agreements” executive order – has signalled that it disapproves of the DFC’s focus on climate change. Even before it took office, efficiency czar Elon Musk criticised DFC executives with climate roles. Ben Black, the administration’s nominee as DFC chief executive, recently dismissed its commitment to 40% of new lending being climate-related as “virtue signalling” in an online post entitled “How to DOGE US Foreign Aid”, a reference to Musk's department of government efficiency initiative. The agency “is working to review all executive orders in coordination with the administration”, according to a DFC official, who said it will “faithfully execute and comply with all executive orders”. Three senior Trump cabinet members (including treasury secretary Scott Bessent) sit on the agency’s seven-strong board. The CEO’s seat will remain vacant until the US Senate Committee on Foreign Relations confirms Black in the position. US-centric As part of his opposition to what his post described as the US aid budget’s “absurd mission drift”, Black has proposed that funding of the DFC “and other market-oriented investments” be increased. Congress may be asked to double the agency’s US$60bn investment capacity when it considers reauthorising the DFC at the end of this year. Even so, it remains unclear whether Black’s “long-term US-centric development strategy” will include the DFC continuing to underpin sovereign debt swaps. The DFC says only that it “remains committed to advancing development finance initiatives that align with US foreign policy and national security objectives of the Trump administration”, according to the official. Although some judge its PRI more expensive than other forms of risk mitigation such as guarantees, market participants would prefer the agency to maintain its key role. “It’d be a net negative to see the DFC exit," said one. Zandstra said: “This market segment has benefited greatly from DFC participation, and I hope they continue to be an active participant." But market participants point to last year’s pickup in sources of risk capital – including multilateral development banks, private sector insurers and family offices – in arguing that the market could overcome DFC's withdrawal. “Scalability does mean divers