Fertitta Entertainment shifted financing from the bond market to the loan market for its US$6.05bn debt refinancing this week, which will also be used to pay a US$250m dividend to billionaire owner Tilman Fertitta.
Fertitta, who owns casino chain Golden Nugget and companies such as the Houston Rockets basketball team, turned to debt markets after a merger with special purpose acquisition company FAST Acquisition Corp fell through last year. In addition to the dividend, proceeds will be used to refinance existing debt.
In the largest deal in US leveraged finance markets so far this year, Fertitta printed a US$3.3bn seven-year first lien loan at SOFR + CSA plus 400bp, as well as a US$500m five-year revolving facility, US$1bn of 4.625% 2029 secured notes (B1/B+) and US$1.25bn 6.75% 2030 unsecured notes (Caa2/CCC+).
Market observers said the deal highlighted two potential themes for the primary market in 2022: an increase in more aggressive event-driven financings and heavier use of the loan market relative to bonds.
Fertitta had originally gone to the market offering a US$1.85bn loan and US$3.7bn of bonds plus the revolving facility.
"On a relative price basis you're getting a little more attractive pricing in the loan market from the issuer's standpoint," said one leveraged finance banker. Given swap rates, it may be favorable to issue floating rate loans and swap the interest payments to fixed, compared with issuing a straight fixed rate bond, he said.
Investors are also gearing up for an increase in acquisitions and dividend payments being financed in the bond market, relative to 2021 which saw a heavy flow of refinancing activity as corporate treasurers took advantage of historically low rates to clear their maturity runways.
"Everybody that needed to refinance had an opportunity to do so at rates they had never seen before, which was a great story for both bondholders and shareholders," said Tom Cannon, portfolio manager at DuPont Capital. "What you have left is people that need to get money, which could be for recapitalizations, paying special dividends or potentially merger opportunities that come up. There is a lot more risk in that kind of exposure."
Bookrunners on the bond are Jefferies, Capital One, Citi, Citizens, Deutsche Bank, KeyBanc, Morgan Stanley, Rabobank and Truist.