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The private credit market is flying high, and its tailwinds soon may be strengthened by a federal appeals court in New York City.

Driving the news: Beginning tomorrow, the Second Circuit will hear arguments over whether syndicated bank loans should be treated as securities.

• If the three-judge panel rules that they should, thus overturning a lower court decision, it could dramatically change how private equity and corporations finance their acquisitions.
• Specifically, it could decrease the use of syndicated bank loans and increase the use of private credit.

Details: The case ties back to a $1.7 billion syndicated term loan in April 2014 for Millennium Health, a San Diego-based drug testing company that at the time was owned by private equity firm TA Associates.

• Around $1.27 billion of the total was for a dividend recap that benefited TA and certain company officers, with lenders getting smoked when Millennium went bankrupt one year later.
• What those lenders apparently hadn't known was that Millennium for years had been under government investigation for Medicare fraud. The banks, however, first became Millennium lenders back in 2012 and allegedly were in the loop. Moreover, investors allegedly weren't informed of material developments in a civil case where Millennium was the defendant.
• A bankruptcy trustee named Marc Kirschner sued the four relevant banks — JPMorgan, BMO, Citigroup and SunTrust — claiming securities law violations. But his efforts to recover losses were thwarted by a Manhattan court in 2020, which basically ruled that the banks couldn't have violated securities laws if syndicated loans aren't securities (as first established by another court nearly two decades earlier).

If the appeals court upholds the lower court ruling, then nothing changes I just wasted a few minutes of your time. Apologies.

If the appeals court overturns the lower court ruling, then it could have what law firm Troutman Pepper calls a "profound effect" on Wall Street and the global economy.

• In short, syndicated loans could become more expensive for borrowers, since banks are unlikely to swallow the extra compliance costs.
• Such a ruling also could spark all sorts of new litigation by lenders in other companies, while funds set up to buy syndicated loans might pause in order to rework their legal structures.

The bottom line: Private credit, sitting on a growing heap of dry powder, would be the short-term winner of Kirschner beating the banks. In the long term, however, it could find itself in the crosshairs of the same groups filing amicus briefs on Kirschner's behalf.

Ares Management invested $375 million for a minority equity stake in WHP Global, the Oaktree Capital-backed retail brand management firm whose portfolio includes Toys "R" Us.

Why it's the BFD: It's fascinating to see private equity go back to a well in which it previously drowned.

Details: The deal grants a $1.6 billion valuation to WHP, whose other brands include Babies "R" Us, Anne Klein, Isaac Mizrahi, Express, Lotto and Joseph Abboud. Two partners at Ares will join the WHP board of directors.

The bottom line: Ares is buying into an asset-light model that benefits from consumer affinity for recognized brands, while sidestepping the operational headaches embedded in bricks and mortar.

• Consensus, an American Fork, Utah-based demo automation platform for enterprise software, raised $110m from Sumeru Equity Partners. https://axios.link/3kZN3tK

• Threecolts, a London-based provider of cloud software for e-commerce, raised $90m in Series A funding. Crossbeam Venture Partners and General Global Capital co-led, and were joined by Stratos and CoVenture. www.threecolts.com

• Fynn, a provider of private student loans for skilled workers, raised $11m in seed funding from YC, Susa Ventures, Village Global, Tenacity VC and Watchfire Ventures. It also secured a $25m debt facility. www.fynncredit.com

🚑 Paragonix Technologies, a Cambridge, Mass.-based organ transplant startup, raised $24m in Series B funding led by Signet Healthcare Partners. www.paragonixtechnologies.com

⚡ Shifted Energy, a Honolulu-based demand energy response startup, raised $4.3m in seed funding, per Axios Pro. Epic Ventures and Kapor Capital co-led, and were joined by Buoyant Ventures, Startup Capital Ventures x SBI Fund and Hunt Development. www.shiftedenergy.com

• Barley, a Toronto-based compensation management platform, raised US$4m in seed funding. Golden Ventures led, and was joined by Union Capital. www.barley.io

⚡ DexMat, a Houston-based startup that helps convert methane into high-performance materials, raised $3m in seed funding led by Shell Ventures. https://axios.link/3L5D3cU

• ViridiCO2, a British developer of chemical products from Co2 emissions, raised £3m in seed funding led by EQT Ventures. https://axios.link/3EYq1Kf

• Elyn, a French, raised €2.5m in pre-seed funding co-led by Headline and Sequoia Arc. https://axios.link/3mErzDe

• Daily Blends, a Toronto-based smart vending machines maker, raised US$2m in seed funding co-led by Hustle Fund and 2048 Ventures.  www.dailyblends.com

• Volta Trucks, a Swedish commercial EV manufacturer, told Reuters that it’s seeking to raise up to €250m in a pre-IPO round. https://axios.link/3L1gVjY

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• Solenis, a Wilmington, Del.-based chemicals company owned by Platinum Equity, agreed to buy Diversey (Nasdaq: DSEY), a Fort Mill, S.C.-based food hygiene and cleaning company in which Bain Capital holds a 78% stake, for $4.6b. https://axios.link/3IXHGmB

🎾 CVC Capital Partners is investing $150m for a 20% stake in the Women's Tennis Association. https://axios.link/3JnZM2E

• DXC Technology (NYSE: DXC), an Ashburn, Va.-based IT services provider with a $6b market cap, said that its ended takeover talks — believed to be with Baring PE Asia — after not receiving a formal offer. https://axios.link/3Yvgph6

• EagleTree Capital acquired PRA, a Chicago-based business events management company, from CI Capital Partners. www.pra.com

🚑 Gauge Capital recapitalized Streamline Healthcare Solutions, an Oak Brook, Ill.-based provider of electronic health record software. www.streamlinehealthcare.com

🚑 H.I.G. Capital acquired Polygon, an Italian provider of health care equipment maintenance services to hospitals. www.polygon.eu

• Kinderhook recapitalized Grand Rapids, Mich.-based aftermarket auto parts distributor Auto-Wares, which subsequently acquired Lafayette Warehouse, an Indiana-based warehouse distributor of OEM and aftermarket auto parts. www.autowares.com

• Lufthansa, the German flagship air carrier, is receiving private equity interest in a minority stake for its Technik aircraft maintenance unit, which could have an enterprise value north of €6b, per Bloomberg. Suitors reportedly include Advent International, Bain Capital, Blackstone and CVC Capital Partners. https://axios.link/3F8ZVo5

• Merit Capital Partners and BlueArc Capital Partners acquired CyCan Industries, a Woodstock, Ga.-based maker of product formulations like adhesives, cleaners and lubricants. www.cycanindustries.com

• New Heritage Capital invested in Stratus, a Shrewsbury, N.J.-based provider of application managed services, implementation and consulting. www.stratustech.com

• Norwest invested in SpryPoint, a Canadian provider of enterprise SaaS for the utility industry. www.sprypoint.com

• Patagonia Provisions, the food and beverage unit of Patagonia, acquired cracker and snacks brand Moonshot. www.moonshotsnacks.com

• Pavion, a portfolio company of Wind Point Partners, acquired Netronix, a San Jose, Calif.-based provider of enterprise security integration technology and services. www.netronixinc.com

• Salt Creek Capital acquired Versa Gripps USA, a Sorrento, Maine-based maker of weightlifting accessories. www.versagripps.com

• Stellex acquired David Brown Santasio, a British provider of industrial gear systems and services, from N4 Partners. www.dbsantasalo.com

⚡ Zero Nox, a Porterville, Calif.-based provider of off-highway vehicle electrification solutions, agreed to go public at an implied $306m enterprise value via Growth for Good (Nasdaq: GFGD), a SPAC led by Yana Watson Kakar (Dalberg Advisors). https://axios.link/3L21uIh

• U.S. antitrust regulators sued to block JetBlue's (Nasdaq: JBLU) planned $3.8b takeover of Spirit Airlines (NYSE: SAVE). In a bit of a twist, the flight attendants union continues to support the merger.

• German antitrust regulators approved Red Bull's planned purchase of German bottled water and soft drinks maker Brandenburger Urstromquelle. https://axios.link/3SWScPJ

• HNI Corp. (NYSE: HNI) agreed to buy Jasper, Ind.-based commercial finishings company Kimball International (Nasdaq: KBAL) for around $485m in cash and stock. https://axios.link/3mqLipC

• Intercontinental Exchange (NYSE: ICE) offered to sell the Empower loan origination business of Black Knight (NYSE: BKI), to save its proposed $13b takeover from antitrust action. https://axios.link/3YtmkTK

• Picturehouse founder Lyn Goleby held talks with London-based Vue International about buying back the movie theater chain from Cineworld, per Reuters. https://axios.link/3mrl0DH

• Quotient Technology (NYSE: QUOT), the owner of Coupons.com that has around a $320m market cap, is exploring a sale, per Reuters. https://axios.link/3ZpBFWQ

• Slice, an Indian consumer payment unicorn, invested $3.4m to acquire a 5% stake in Indian bank North East Small Finance. https://axios.link/41Ww5Ny

• WeWork (NYSE: WE) is in talks to raise "hundreds of millions of dollars" from potential investors like Yardi Systems, which would let it restructure debt, per Bloomberg. https://axios.link/3yoycMg

• La Famiglia, a Berlin-based VC firm, raised €165m for its third seed fund and €90m for its first growth fund. https://axios.link/3L77OOS

🌎 Muus Climate Partners, a New York-based climate VC firm, raised $50m for its second fund, per Axios Pro. https://axios.link/3SYyq6i

• The Riverside Company raised $1.87b for its sixth microcap fund. www.riversidecompany.com

• Permira raised €16.7b for its eighth flagship buyout fund. https://axios.link/3YytrKR

• Salesforce Ventures launched a $250m fund focused on generative AI startups. https://axios.link/3F2tjfE

• Elisabeth Reynolds joined VC firm Unless as a partner. She previously was special assistant to President Biden for manufacturing and economic development and is an MIT lecturer. www.unlesspartners.com

• Genstar Capital promoted Ben Marshall to managing director, Deryn Jakolev and Chong Ni to principals, and Carson Ewanich to VP of investor solutions. www.genstarcap.com

Fed chair Jay Powell returns to Capitol Hill today for another round of testimony, after effectively telling the markets to expect steeper rate hikes than most had forecasted. Go deeper.

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