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Ryan Daniel

As we barrel towards the end of 2023 (and towards what might be a desolate December for primary), this week felt like a much-needed window of stability.

If you’re still having trouble believing that, the mere fact that we had EHY inflows for the first time in nine weeks (the largest since July) should be reason to sit up and take notice. 

Clearly, leveraged finance sentiment has shifted for the better — but from a low base.

At the same time, the European leveraged loan market continues to chug along — CLOs continuing to print and provide a strong technical bid.

That said, investors would be wise to remain cautious even if there has been an uptick in sentiment.

As one sellsider put it: “On a positive note, issuers right now have got financing options plus markets are functioning reasonably well. I guess the only thing is that bad news can come from nowhere and we’ve seen that a lot in the last year.”

In a sign that issuers have felt more confident about primary recently: EG Group followed up on last week’s announcement of a $500m-equivalent dual tranche TLB add-on with a $1.6bn-equivalent dual-tranche SSN offering. 

But we saw some last-minute alterations — and maybe we should have expected as much given the company's history.

As per the latest deal update (rather late in our inboxes, with an announcement Friday morning after the bond launch on Monday) the loan leg has been pulled in favour of $500m of 2028 FRNs (50% PIK) that have been “privately placed with 2 high quality investors” at S+750bps and an OID of 97. 

The documentation is also said to be “substantially consistent” with the SSNs.

A $200m asset disposal bridge facility has also been put in place at S/E+550bps with a maturity of 2028, reducing $200m of the 2025 Tranche A stub.

On the HY front, the deal remains circa $1.6bn-equivalent — split across $1.1-1.2bn and €400-500m. Call protection has also been extended to 2.5 years versus 2 years originally.

Price talk for the bonds has landed higher than expectations from buysiders who spoke to 9fin earlier in the week. The dollar tranche is in the 11.75-12% area whilst around 11% for euros.

Two buysiders had originally expected price talk for the high yield bond to shake out at the 10-11% region, with the first one saying: “EG are finishing a complicated refi and it’s quite a big quantum of debt so it’s about finding the right price to clear that. Given where the loan is pricing, I’m looking at upwards of 10% for the bonds.”

One sellsider suggested that the large size of EG Group’s cap stack contributed to “pretty cheap” pricing, though often in leveraged finance, the liquidity offered by large capital structures allows widely held names to come tighter.

“Size is helpful for an issuer up to a limit. But in the case of EG, it’s so big now that a lot of people are already in it. Its size is now having the opposite effect on pricing — making it more expensive for the issuer, not cheaper.”

As was the case back in June, governance remains a big concern for potential investors. 

A third buysider said: “I think some investors think management lacks the sophistication required for a company this size. They’re not up to speed with what investors expect.”

Nevertheless, they expected yields offered to garner attention from funds — in spite of concerns on the underlying credit.

“I see this as being a tug of war between PMs and analysts — the latter might not be comfortable whereas the former might see the yields available and try to get comfortable. If you’re a big fund, can you afford to sit on the sidelines here?”

Another buysider wasn’t as sanguine: “Lenders are pretty full on the name even with large repayments and we’re all exhausted with the whole process while trading is poor. Easier to pass than to do it.”

Next up — and also another bumper deal split across bonds and loans — market familiar INEOS Quattro had a smoother execution.

That said, it’s worth noting that there were some MFN changes (50bps MFN until January 2026 vs 50bps MFN for 12 months only) to ensure lenders get the best price now, versus the company coming back later and cheaper to finish off the 2026s.

The 2029 dual-tranche TLB deal was upsized as the the euro leg increased from circa €800m to €875m. 

Both loan legs came in slightly wider — the euro tranche landed on final pricing of E+450bps and OID of 97 (versus price talk of 97-98). Meanwhile the $1.1bn tranche finalised at S+CSA+425bps and OID of 97 (versus price talk of 97-98).

But the bonds came in tighter — €525m and $400m of 5NC2s ended up at a yield of 8.5% (versus price talk of 8.5-8.75%) and 9.625% respectively (versus price talk in the 9.75% area).

It also announced the results of its cash tender offer for its 3.375% 2026 SSNs — details of which can be found here.

The second buysider said: “Despite the cyclical downturn in the chemicals industry, they’re well-run given their great management team.”

On governance, the buysider said potential investor concerns were also assuaged recently by the fact that INEOS CEO Jim Ratcliffe wouldn’t be funding his reported 25% stake in Manchester United from the company — instead opting to use his personal wealth for any deal. 

Despite the high quality of the business, the third buysider still felt pricing represented a good opportunity for investors.

“It’s got a sensible cap structure and I still fundamentally like the company — plus I’m actually getting paid for it.”

French recycling business Paprec came to market with €600m of green SSNs split equally across 2027 and 2029maturities. Both legs came in tighter than talk— the 2027 notes landed on final terms of 6.5% (versus IPTs of high-6s-to-7s) and the 2029 notes finalised at 7.25% (versus IPTs of low-to-mid-7s). 

As per 9fin coverage on the name, the deal is the first since its founder and CEO was met with corruption charges last year.

While one buysider was “passing on ESG grounds”, another said: “There’s a lot to like about this credit, so as long as there’s the new issue premium I’d expect, this doesn’t need to get in the way for me.”

In part down to its credit rating, the deal was argued by one source to be the highest quality EHY bond deal of the week. 

“Bonds are back,” said a sellside source, “but we’ll see how investors receive those away from the BB end.”

High-end furniture designer International Design Group rounded off the EHY deals from the week — upsizing its €400m of 5NC2s to €425m. Final pricing of 10% was in line with price talk at the same level.

The second buysider noted that demand should be resilient for the company even in a recession, given the “very expensive” luxury segment of the market it targets. Nevertheless, they conceded that it did have some element of cyclicality to it as “interest from new hotels may be dampened.”

On that note, check out the latest Earnings Digest to see how EHY companies are navigating a challenging economic environment.

British veterinary group IVC Evidensia took top billing in loan land with the announcement of a chunky multi-currency TLB deal — an A&E from 2026 to 2028 for existing euros and sterling whereas the dollar debt is new and refinances VetStrategy, an acquisition from 2021. The debt will also repay the company’s RCF drawings.

The transaction is split across €2.13bn (price talk of E+500-525bps and 98), $1.2bn (price talk of S+525-550bps and 98) and £900m (price talk of S+575bps and 97-97.5). 

On the sizeable sterling portion which caught some by surprise, a buysider assured that there is sterling demand “for the right deal”. 

On the credit itself, they had mixed feelings: “We really like it but it’s super levered. They always acquire but, to be fair, those businesses are super strong.”

In particular, investors will be focusing on whether the pandemic pet boom has passed as well as whether there is enough interest coverage as IVC Evidensia has been FCF negative (and is expected to remain so for the next year by Fitch).

French pharmaceutical company Cooper Consumer Health came to market with a €1.1bn 2028 TLB add-on, pricing at E+475bps and an OID of 98.5 (versus price talk of E+475-500bps and OID of 98).

As 9fin has written, the extended facility will finance the acquisition of Nasdaq-listed Viatris’ European over-the-counter business.

A buysider said: “The acquisition of the Viatris business is quite transformative and raises a degree of risk on the integration of a such a large company, but we can stand with that as it is.”

Pharma has long been a market darling, providing investors with an opportunity to up quality in their portfolios: “The sector itself is robust and Cooper is one of the strongest names out there, with a resilient business and favourable market positioning. It’s a boring name, but we like boring names in fixed income.”

American motor vehicle manufacturer Thor Industries completed its dual-tranche 2030 TLB — the $450m tranche landing at S+275bps and OID of 99.5 whilst the €330m leg finalised at E+300bps and OID of 99.

The third buysider praised the company’s cap structure which had “next-to-no leverage as so much of it is listed”. They also noted the company’s innovation contributing to improved sustainability — specifically its aerodynamic designs of recreational vehicles.

Rounding off the action, British insurance services group Howden announced a $555m 2030 TLB add-on; pricing is guiding towards S+400bps and OID of 98-98.5.

Finally, cloud-based HR software provider Silae also announced an add-on: a €400m 2027 TLB with price talk at E+450bps, funding a sizeable dividend back to sponsors Silver Lake (acquired back in 2020).

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