Private Credit’s Salt Fight Shows ‘Anything But Software’ Push

(Bloomberg) — In a tongue-in-cheek private credit glossary making the rounds, ABS, the usual abbreviation for asset-backed securities, has been rebranded as “anything but software.”

Once darlings of the market, software firms have turned into black sheep as artificial intelligence threatens to upend their businesses. While much activity has shifted toward financing the AI infrastructure buildout, demand is also growing for asset-heavy, old-economy businesses.

Take, for example, American Rock Salt, which mines and sells road salt and other sodium chloride products. Despite the firm’s junk ratings, lenders are currently duking it out over the company. American Rock Salt is working with Morgan Stanley to refinance more than $700 million of debt as its financial situation improves, according to people familiar with the matter.

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The bank has been soliciting feedback on structure and pricing from private credit managers as well as existing lenders of its broadly syndicated loans, said the people, asking not to identified discussing a private matter. The potential debt financing could price at 5 percentage points over the benchmark rate for the first-lien loan and 8 percentage points for second-lien obligations.

Details are still being ironed out, and a deal may not materialize. A representative for Morgan Stanley declined to comment, while a representative for American Rock Salt didn’t respond to requests for comment.

American Rock Salt’s assets include the largest operating salt mine in the US, selling to state and local government agencies in the northeast, according to its website. Moody’s Ratings assigned a Caa2 credit score to the firm in May — eight rungs into junk territory. While cautious due to the company’s high leverage and weak liquidity, the rater highlighted American Rock Salt’s high-quality mine asset and modest capital expenditures.

Direct lenders have focused on hard assets as a way to dodge volatility in technology. The “SaaSpocalypse” earlier this year that stemmed from jitters over AI contributed to a surge in redemption requests as investors sought to pull out more than $13 billion from over a dozen non-traded business development companies.

“Given recent volatility in the SaaS sector and noise around investor redemptions, private credit investors may be putting a premium on hard assets that can be monetized in a downsized scenario more quickly and cheaply than intangible assets,” said Michael Handler, a partner at law firm King & Spalding.

The company has been buoyed by harsh winters driving demand for de-icing salt, and investors like that the business is structured as a partnership, which incentivizes leaders to keep it out of bankruptcy, the people familiar said.

Its $485 million first-lien loan due in 2028 is quoted at about 97 cents on the dollar, up from 73 cents on Sept. 25, prior to the onset of massive winter storms across the US, according to data compiled by Bloomberg.