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Kat Hidalgo

On Monday, British restaurant staple Pizza Express emerged with the latest eyebrow raising deal in European High Yield. Some £335m of Senior Secured Notes due 2026 (B2/B), and £21m of cash on balance sheet will replace the remaining £217m 2021 Notes, £59m New Money facility, and £72m Term Loan, which were the result of a debt restructuring finalised just eight months ago.

With over £500m in 2019 sales (LTM £167.3m), the group is the second largest casual dining operator in the UK after Nando's. Strongly affected by the pandemic, they took advantage of job retention schemes, business rates relief and VAT deferrals, as well as concluding a CVA, enabling them to reduce their property cost base by closing unprofitable sites and reducing rents. IPTs on the deal were sent out in the low to mid 7s, before final pricing settled at 6.75%, offering some yield over recent stressed refinancing deals.

On an ESG front, a lack of timely and transparent reporting, while common among peers, makes assessment difficult - there are however numerous examples of poor labour practices. On the Legals, portability is available at opening leverage (when based on the companies ‘Pre-Covid’ Adjusted 2019 figure), and interestingly, it appears this pre-Covid EBITDA figure may be used going forward for covenant purposes.

Next up, Mexican and French automotive parts suppliers Nemak and Parts Europe were out marketing deals to refinance existing debt and fund general corporate purposes.

Nemak’s €500m SUNs due 2028 marks their inaugural sustainability-linked eurobond, with aims to reduce Scope 1 and 2 GHG emissions by 18% by 2026 (SPT1), relative to a 2019 baseline, and 28% reduction by 2030 (SPT2). The company had more than achieved this reduction by 2020 already (-18.1%), although Nemak called this an ‘outlier’ due to the impact of Covid-19. On an initial read, it’s difficult to accurately identify if there’s already been a material improvement versus the baseline, although it is also important to note that Scope 1 and 2 emissions only cover ~30% of the groups total emissions.

Announced on Monday - Bain Capital owned - Parts Europe was out marketing €350m in new Senior Secured FRNs due 2027, on IPTs of E+450-475 (B3/B-). The notes upsized by €30m , and priced at E+400 (par) on Wednesday. After two pulled IPO attempts (the latest in June) the deal will refinance the existing 2016 floating notes, and repay a PGE loan, while also adding €17m of cash to the balance sheet. Bain purchased the group, then known as Autodis, from TowerBrook and Investcorp back in 2015 for €614.9m on an EV/EBITDA multiple of 7.1x. On ‘Current EBITDA’ of €222.2m, that would imply a current EV of around €1,600m - when the IPO was revived in February of this year, sources suggested the group could be valued at more than €1,500m.

We also saw two recent deals return with taps, building on strong performance in the secondary market. Frozen foods retailer Nomad Foods offered another €50m under its 2.50% SSNs due 2028, pricing the additional notes at 100.75 (B1/BB-/BB+), while German pharmaceutical group Grünenthal priced a larger €300m tap of its debut 4.125% SSNs due 2028 at 102 (B1/B+/BB).

Grünenthal has long suffered reputational damage from its sale of Thalidomide in the 1950s, and as of Dec-2020 was still party to claims from 129 individuals, there also remain concerns around the ongoing damage from its sale of opioid painkillers like Tramadol. However, it should be noted the company strategy states it has a focus on non-opioid treatments, and although it licenses certain IP to US counterparties, it does not sell or distribute opioids to customers in the US (where opioid abuse is of most concern). Clients can read more details on the company in our Credit QuickTake from April.

It appears all things come in pairs, as two dual tranche offerings from Jaguar Land Rover and Lufthansa closed out the second half of the week, offering benchmark unsecured debt for general corporate purposes.

JLR’s offering of €500m and $500m will boost cash and equivalents at the firm from £4.8bn to £5.5bn. The timing wasn’t ideal, coming just days after it announced issues with the supply of semiconductors, which affected wholesales in the first quarter. It appears the extra liquidity may be necessary, as in Q1 the group expects a cash outflow of ~£1bn in relation to the supply constraints. Although ’very dynamic and difficult to forecast’, the chip shortage is expected to worsen in the second quarter, potentially lowering wholesale volumes by ~50%.

Lufthansa’s €1bn SUNs were split equally between 2.00% three year and 3.50% eight year tranches (Ba2/BB-). February’s €1.6bn refinancing took care of financial liabilities for 2021, and the group has also repaid a €1bn KfW loan, leaving the new funds raised to improve liquidity and lay the ground for a new capital increase. The group hopes to reactivate nearly all routes by September.

And finally, on Friday APCOA Parking, the German car park operator, announced its intention to refinance existing debt with €665m in new Senior Secured fixed and floating notes (B3/B). The group managed to briefly pre-announce the deal on Thursday night, before quickly removing the link from its website and then restoring the announcement this morning (giving 9fin users a 15-hour jump on the news).

While the deluge of primary has by no means become a sprinkle, conditions that have previously seen companies opportunistically take advantage of a flexible and open leveraged loan market may be easing off.

A number of loans have priced wide of guidance this week, and the fight against aggressive docs continues.

One buysider said: “At the end of 2020 we saw lots of bond and loan investors sell their positions and they started the year with so much cash. On the loans side it's definitely softened a bit. There’s only so much appetite in the loan market. People are saying they’re going to be more selective, because they can be. For example, if you see an aggressive dividend transaction, some investors won’t go for that anymore.”

A second buysider echoed the statement, suggesting investors have become a bit more credit-focused recently.

It's another attack of the refis this week, as five of the 10 companies issuing loans opt to take advantage of the friendly market. The second buysider also noted this was likely to continue with their pipeline “chock full” of refinancings.

The largest in market currently is Flutter Entertainment, the Ireland-based betting group responsible for Paddy Power. The highest-rated tranches currently in syndication, Flutter is offering more than $2bn-equivalent across two tranches. The company performed well during the pandemic, with revenue growing by 28% YoY to £5.3bn and EBITDA growing 16% YoY to £1.2bn. Its annual report stated that performance was driven by the migration of traditional retail spend to online and a shift in leisure spending patterns towards more home-based activities.

Entain, another betting group, this time based in the Isle of Man, also offers a dollar and a euro tranche for the investor happy to turn a blind eye to some ESG concerns. The company’s 2020 revenue and EBITDA grew by 28% and 11%, respectively, against its 2019 figure.

There is little to choose between the two company’s EBITDA margins, with Flutter clocking in at 21.89% and Entain 21.47%.

Offering an oasis from the B3-studded desert that shaped the second quarter of the year, B2-rated tranches make up the majority of the market currently in syndication, with six tranches out of 13.

“The market has been pretty much open for everyone and you did see companies being opportunistic, but this happened more in May and June, because investors get frustrated after doing some of the more challenging deals,” said the second buysider.

Of all of them, guidance is set the highest for Datasite’s €220m tranche at E+375-400 bps. The Capvest-backed M&A data platform is seeking a repricing and an add-on in the form of a $100m fungible TLB to fund a prospective acquisition. Existing pricing for its original euro and dollar tranches is  E+L/425 bps. The floor guidance of 0% above Euribor/Libor is also unchanged. Commitments are due by July 12.

Constellation Automotive Group, previously known as BCA Marketplace, is also in the market with a B2/B- £785m TLB, the split of which is yet to be determined between sterling and euro. The sterling tranche set guidance at E+400-425 and the GBP split at S+475-500. The business is also offering a Second Lien rated Caa2/CCC, with guidance at S+800. The TDR-Capital company is likely to use the financing to invest in Cinch, an online used car marketplace, which sits outside of the restricted group and to pay a dividend to the sponsors.

The Abu Dhabi Investment Authority, Soros Fund Management and GIC, as well as existing investor Neuberger Berman injected £1bn in equity in Constellation in May 2021, just eight months after the business had launched Cinch, Constellation’s answer to Cazoo. The used car market in Europe is worth £350bn, with only 1% of this coming from online sales, according to a report by The Times, while Cinch expects growth in the number of vehicles sold of 45% month-on-month. Commitments are due 16 July.

In another mark of buysiders standing up for themselves, Circet, the French telecommunications services provider has refined its pricing on a €1.625bn TLB, to E+375 bps from E+350-375 bps. The financing is being raised alongside a €100m non-recourse factoring facility and €250m RCF. The OID on the loan has tightened to 99.75-100 from 99.5. In addition there have been changes to the margin ratchet, ticking fee, Restricted Payment General Leverage ratio Basket and EBITDA add-backs.

The wider pricing comes despite a history of EBITDA growth, strong EBITDA margins, impressive cash flow generation and a track record of integrating acquisitions successfully, though the business does have some quite serious customer concentration, with its top two customers making up almost 30% of pro forma revenue. 

Indeed, buysiders may have begun drawing a line in the sand on weak margins, reflected in the loans that priced this week.

In the world of credits that priced this week, buysiders were likely pleased to see more varied pricing trends, rather than the tighter than tight flexing that has proliferated the market this year. While two deals priced at the tight end of guidance, they offered hefty margins already, well above the recent market standard of E+350-375 bps.

French software business Cegid’s loan priced at E+350 bps, after guidance of E+325 bps. During syndication, the loan even widened to a 99 OID, before settling at 99.5. A 0% floor and 101 soft call protection for six months remained the same. The €880m TLB went towards a refinancing and the acquisition of payroll and human resources management firm Talentsoft. The deal followed KKR investing alongside majority shareholder Silver Lake in June, a transaction that valued the company at €5.5bn.

Tarkett also priced at the wide end of guidance, with the deal struggling to pass through the market, according to buysiders. While some were pleased with the conservative financial policy of the family owner and minority investor Wendel, characterised by low leverage, others were too flustered by raw materials volatility, particularly oil prices, as PVC and plasticisers made up more than of all of Tarkett’s raw materials purchases in 2020. 

Another B2-rated tranche, Galileo priced its €1bn TLB at the wide end of E+350-375 bps guidance at E+375 bps this week. The OID was tightened slightly however, from 99.75 to 99.5. Galileo is Europe’s largest for-profit higher education group, having completed a string of acquisitions in recent years, including French peer Studialis in 2015, that was backed with a €230m TLB. it last tapped the market for a €170m loan to fund its buyout by the consortium of current owners. The financing comprised a €90m first-lien fungible add-on and a €80m second-lien term loan B, which priced at E+325 bps at 94.5 OID, and at E+600 bps and at 94 OID, respectively.

Tikehau’s Clara.net also had a €300m tranche priced wide, though its sterling-denominated tranche settled at the tight end of guidance (buysiders were likely more than satisfied with S+500 bps in the current market).

Spanish tile manufacturer Altadia was looked upon kindly by investors this week. The loan is fungible with an existing €375m TLB issued in 2020, though the OID on the add-on started life at 98.75 to settle at 99.75. One buysider told 9fin the pricing was attractive and that they felt confident in the company’s business plan and its ability to cut costs.

It wouldn’t be a busy week in primary without at least a couple of healthcare deals. Aenova also priced at the tight end of guidance of E+475-500 bps, at E+475 bps. The company issued this loan amid the successful execution of an operational turnaround, buoyed by the pandemic, increased procurement savings and a less complex capital structure. S&P changed its outlook from stable to positive as a result.

Continuing the trend of issuance from private hospitals chain issuance in 2021, Vivalto Sante has come to market with €890m TLB as part of a wider €1.09bn debt package to refinance existing debt and finance pre-identified targets. Like its peers issuing earlier in the year, Vivalto has taken an ESG slant on its financing, with margins to ratchet up or down by 10 bps subject to certain ESG-linked KPIs. Commitments are due 20 July.

The French private healthcare sector is in an acquisition race, currently. Alongside competition from public hospitals, Vivalto is the third largest private hospital group, behind Ramsay Santé and Elsan. The two together control nearly 50% of the market in terms of revenue and facilities, though Vivalto’s revenue is around double that of the next smallest competitor, Almaviva, says S&P. Currently, 60% of the French private hospital sector is consolidated into those top four players versus less than half in 2017 – indicating that the pace of buy-ups could become sluggish in the coming years. Clients can log in to see our loan previews and Credit QuickTakes on competitors Ramsay Sante, and Almaviva.

Biogroup LCD is also seeking a €300m add-on non-fungible with an existing €1.45bn seven-year TLB issued in January 2021. The add-on, which will fund future acquisitions, is offered at E+375 bps unlike the existing loan that pays E+350 bps with an OID of 99.75.

Likely taking advantage of the summer holidays to raise funds, Infinitas has launched a €489m TLB to support its LBO by NPM Capital and its merger with NPM-owned learning company Futurewhiz, which employs around 80 people. The loan will also refinance debt at both companies. The lesser known Dutch PE firm invests in several ESG-related trends such as ending hunger, next-generation energy and education. NPM is a long-term investor, holding its investments for more than 10 years in some cases, according to its website. Price talk has not yet been released on the deal.

The market trended downwards by less than one pt, with no sectors keeping its head above negative digits. “I’ve definitely noticed the market trending downwards,” said the second buysider. “There are a lot more credits trading below par where there weren’t before, maybe for a few weeks now. It’s likely due to technicals in the market, perhaps because not many CLOs are printing right now.”

IT was the largest falling sector, with companies like communications infrastructure business PlusServer and software company Exact Software in the top ten companies seeing the largest falls this week.

Exact Software’s €450m tranches, one issued in April 2019 and paying E+425, the other issued in November 2019 paying E+375 bps, each dropped around half a point to settle at 99. The tranche is rated by B3 while the second is rated B2 by Moody’s.

Beleaguered PlusServer languished at the more distressed level of the market. Its €190m and €70m tranches maturing in 2024 paying E+375 bps, each dropped by 0.875-pts to be quoted at 68.6.

But the biggest mover of the market hailed from the food products sector. Areas’s €1.05bn TLB (B1/B) paying E+475 bps dropped by 1.3 pts to 89.8.

No credit rose by more than a point for the second consecutive week.

It was yet another non-mover across HY this week, with an average loss of just -0.04 pts (57% -0.22 pts | 39% +0.23 pts). Financials (+0.04 pts) saw the greatest gains, driven by a +2 pts gain in Amigo’s 2024s, while Energy (-0.27 pts) tracked the greatest losses, as Saipem’s SUNs traded down -0.2 to -1.7 pts after news that a court turned down its appeal against a resolution by Consob that it had not drawn up its 2016 results properly.

Elsewhere, the iTraxx European Crossover widened marginally on the week, quoted at 235 bps today (229 bps last week). In European domiciled HY credit fund flows, Global HY saw the largest inflows (+$523m), followed by US HY (+$141m), and finally Euro HY (+$49m).

Back in March we took a look into HY companies who were using reverse factoring arrangements, following the fall-out from Greensill. We initially only found Shop Direct, although after looking into the Credit Suisse Supply Chain fund accounts we suspected Iceland also had some exposure.

Iceland’s FY numbers came out this week, and detail the loss of a supply chain financing facility provided by Greensill in Mar-2021. The company states the cash balance was £12m lower than expected due to the loss of the facility. After days payable outstanding had been trending upward since 2013 (~63), to 79 in FY 2020, this now dropped off sharply to 73 days in FY 2021.

Issued in February, both the 2025 and 2028 tranches have traded steadily down from par to around 98 and 94 respectively, with the 2028s marking the worst trading European HY bond issued this year.

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