Last winter dumped heavy snow across the Northeast, and American Rock Salt is still feeling the boost. The business has tapped Morgan Stanley for a debt refinancing of more than $700 million, and an unusual group wants in: private credit lenders.
These are the funds that lend to companies directly, skipping the traditional bank route. They usually avoid borrowers with junk credit ratings, and American Rock Salt qualifies.
In May, Moody's put the company eight rungs into junk territory, while praising the mine's quality and the company's low capital-spending needs. The company sells road salt to state and local agencies across the Northeast.
Then the winter storms hit, and demand for road salt soared. The company's $485 million first-lien loan, maturing in 2028, has since climbed to about 97 cents on the dollar; it traded at 73 cents on Sept. 25.
The refinancing is part of a broader shift in private credit, where lenders are prioritizing tangible collateral and liquidity after a period of redemption pressures and volatility in tech valuations. This preference for hard assets has reshaped which deals get funding and at what terms.
First-lien means that lender stands first in line to be repaid if the company fails. A refinancing under discussion could price at 5 percentage points above a benchmark rate for that first-lien debt and 8 percentage points above benchmark for second-lien debt, which is second in line.
The deal could still fall apart. Morgan Stanley has been gathering views on pricing and structure from existing debt holders and from would-be private lenders, according to people familiar with the talks.
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Morgan Stanley declined to comment, and American Rock Salt did not respond to requests for comment.
The salt deal is about more than winter. Private credit has soured on software as artificial intelligence threatens the sector, and lenders are hunting for businesses with physical assets they can seize if a loan goes bad.
Earlier this year, fear that AI would crush subscription software companies, known as software-as-a-service or SaaS, led investors to pull their money out of private credit funds. Redemption requests totaling more than $13 billion came from more than twelve private-lending vehicles that are not exchange-traded, called non-traded business development companies.
Some in the industry joke that ABS, once short for asset-backed securities, now stands for "anything but software." The software refinancing attempts that have gone to market are struggling: Planview recently failed to refinance its debt with private credit despite a hefty offered rate, and Thoma Bravo's Sophos saw a $2.5 billion deal rejected by private lenders.
Meanwhile, asset-heavy deals are getting attention. Ares Management is weighing a $2 billion loan to fund pharmacy-benefits manager MedImpact Healthcare Systems' acquisition.
Blackstone in July arranged a $400 million private credit deal to back the buyout of Integra Testing Services, an HVAC company (heating, ventilation, and air conditioning). Software, though, is still a major share of private credit portfolios.
Software is Blue Owl Capital Corp.'s biggest sector, representing 18% of its $15 billion portfolio; Blackstone Secured Lending Fund's software allocation slipped to roughly 19%, a two-point drop from the preceding quarter.
The bottom line: private credit investors want collateral they can touch. Michael Handler, a partner at King & Spalding, put it this way: "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."
In simpler terms, a salt mine is easier to value and resell than a software codebase if the borrower goes under. That is steering capital toward companies with equipment and facilities.
That does not mean software is dead. Blue Owl says its existing software loans are among its best-performing assets, and co-president Craig Packer said, "We're going to continue to be cautious around software."
Matthew Freund, president of Barings BDC, sees "compelling opportunities in this vertical as some lenders with large software portfolios are avoiding this sector entirely."
For your portfolio, this shift matters. Private credit is a growing slice of how companies borrow money, and lenders' preference for hard assets affects which businesses get funding and which don't. That eventually shows up in the returns of the funds you own.
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