This website uses cookies, pixel tags, and similar technologies (“Cookies”) for the purpose of enabling site operations and for performance, personalisation, and marketing purposes. We use our own Cookies and some from third parties. Only essential Cookies are used by default. By clicking “Accept All” you consent to the use of non-essential Cookies (i.e., functional, analytics, and marketing Cookies) and the related processing of personal data. You can manage your consent preferences by clicking Manage Preferences. You may withdraw a consent at any time by using the link “Cookie Preferences” in the footer of our website.
Our Privacy Notice is accessible here. To learn more about the use of Cookies on our website, please view our Cookie Notice.
European LevFin Wrap — Alter Domus accelerates, Monbake served
Ryan Daniel
•5 min read
As we finally enter shorts weather in London, things are looking pretty sunny for European LevFin markets.
This sentiment was bolstered by European central banks this week as the Swedish Riksbank became the second G10 central bank to cut rates this cycle, following the Swiss National Bank’s cut in March. There were dovish tones from Bank of England governor Andrew Bailey too, despite the Bank of England’s 7-2 decision to hold interest rates, saying there could be faster cuts than expected over the coming quarters. The ECB is also expected to cut in four weeks’ time, its first since before the pandemic.
As per Deutsche Bank research, the fact that the ECB looks set to cut before the Fed is also worth noting as it’s usually been the other way round. The implications of this haven’t been fully felt yet, but we’d expect this to affect cross-border issuers as they grapple with a stronger dollar throughout 2024.
Cuts should act as a tailwind for a broadly resilient market, even though there are undoubtedly high-profile pockets of distress.
Deborah Cohen Malka, partner and portfolio manager at AlbaCore Capital, said: "Markets are constructive; the issue is more about companies with short-dated maturities that are overleveraged. They don't have the time to grow their capital structures given the higher interest rates.”
That said, syndicated markets won’t be happy until the common complaint of meagre new money deal flow is addressed.
"There's space for syndicated and private credit markets,” Malka said. “However, both are suffering from a lack of M&A activity, which has been creating friction between them.”
That said, loan investors have been treated to some much anticipated new money supply as Spanish bread and bakery behemoth Monbake launched a €520m 2031 TLB. This follows CVC’s acquisition in March from Ardian, Alantra, Artá, and Landon for a reported €900m.
LevFin investors will be hoping there’s more M&A to roll out the oven this year.
One buysider said they were “happy” to see the paper and label manufacturer reprice, but S&P and Moody’s gave Fedrigoni a negative outlook, citing concerns such as insufficient interest coverage and growing debt within the restricted group over the last few months.
We haven't seen any pure commercial real estate borrowers approach the market since Medical Properties Trust and Branicks in late 2021 — both of which are facing financial challenges, with Branicks already restructuring some of its debt.
The €350m deal for Befimmo’s 2029 SSNs tightened to 10.5% from IPTs of high 10s to 11%, suggesting that sentiment for real estate names is recovering, considering Befimmo’s 100% office exposure.
Fund administration might not sound like the sexiest sector to the uninitiated, but you wouldn’t draw that conclusion looking at Alter Domus'€1.35bn-equivalent 2031 TLB deal, which is accelerating and tightening to 375-400bps.
Pricing was a concern even before the deal tightened, especially considering the company’s B3 rating (many expected it to land at B2).
A buysider said, “if pricing gets below 400bps it wouldn’t work for us, but 400bps is fine,” whilst a sellsider said (before tightening) they’d be “amazed” if it went to 375bps.
The sellsider also said the disconnect between rating and pricing could be explained by the company’s high leverage as opposed to doubts regarding business quality.
Sources praised strong characteristics such as 94% recurring revenues and exposure to 90% of the 30 largest funds. One buysider even suggested that it could be upgraded in the next year if performance continues to impress.
The investor also offset concerns around leverage by pointing to Alter Domus’ EV multiple of around 21x, suggesting it was justifiable given such a high valuation.
Advania, the Swedish IT company, launched its multi-tranche TLB deal on Wednesday. Last week, we wrote that we expected it to pre-place some sterling debt, which materialised along with Nordic currency debt.
On top of its €375m syndicated deal, it pre-placed €95m-equivalent of Swedish krona, €250m-equivalent of sterling and €100m of Norweigan krone.
A sellsider said: “€250m-equivalent for sterling is probably around the smallest you could do in TLB markets so I’m not surprised they pre-placed.”
They added that it is more difficult to place sterling debt in the loan market because the CLO bid is not there, whereas there are high yield funds set up to take down sterling bonds.
Whilst some investors might bemoan supply slipping away to private lenders, a buysider said it signals well-functioning capital markets.
“I think it’s a good sign that these unpopular currencies can get sorted because they would have been more difficult in the past.”
