European LevFin Wrap — BSL sings a new song; how low can pricing go?

Karis Hustad

2 February 2024•10 min read

After a year of losing out to private credit, the syndicated market seems to be humming a new tune (BSL is back, alright!). The repricing frenzy has private credit-financed companies returning to syndicated markets for an encore. But even as banks limber up, there’s a question ahead: how low can CLOs go?

The private “exodus” has started, according to one advisor, who said they're pitching more loans and bonds to take out private credit financings from 2022 and early 2023. This advisor anticipates that even in the big LBO deals private credit will only take junior or mezzanine tranche but banks and CLO lenders will get the bigger chunk.

We’ve got an Italian ingredients company with nearly €1bn of private credit debt looking to the syndicated market in the near future, for example, while German intensive care service provider Deutsche Fachpflege is also looking to refinance €400m of private debt. The company is in the market with a €420m 2031 TLB guided at E+450-475bps with 98.5 OID.

“The golden age of private credit is not over, but as repricings flood the liquid markets we will see more companies going back to the banks for cheaper loans,” said a sellsider, not involved in the above transactions.

But CLO arbitrage is testing how low margins can really go. €9.2bn of repricings have hit the European market this year, versus €2.1bn for the entirety of 2023, per 9fin data.

“Loan repricing is going to be negative for portfolio spreads in the short term. But there's also a lot of assets in the market that are 350-375bps that were priced pre-crisis that will also come out of the market,” said Conor Power, managing director at WhiteStar in Europe — see here for an in-depth look at the challenges.

“There will be assets that reprice from 450-475bps down, but we always expected a repricings of those. Then you have assets like Stada at 350bps with a 2026 maturity. That [loan] needs to A&E or refi and that should come with a higher spread on it.”

He adds WhiteStar is starting to decline repricings below 400bps, particularly for the more stretched credit stories.

For now though, investors are still clamouring for new money supply and likely will be for the first half of the year. One advisor described the M&A outlook as “gloomy” with Q1 and Q2 pipeline remaining scarce due to valuation gaps. The IPO market may pick up, offering a public markets exit in preference to a sponsor-driven M&A sale.

“Primary has gone insane,” said a buysider. Pointing to the volume of repricings, they added, “Pricing has got ahead of itself and will be the case until we get some more primary supply.”

This is partially driven by macro optimism, remaining strong even as the Federal Reserve and Bank of England held off on lowering interest rates this week. Non-farm payrolls on Friday proved a big surprise but this arguably only firms up the narrative — rates will stay put for a while with no Fed cut coming in March.

A note from Deutsche Bank’s Macro Strategy team pointed out that even though futures hit the lowest chance of a March cut in two months this week, investors “are still expecting a similar pace of rate cuts over the year as a whole.”

Meanwhile, the seven-day period from the 25 to 31 January saw further inflows to PE HY while €-IG funds recorded outflows for the first time since October, according to Barclay’s Credit Strategy. PE HY inflows were heavily skewed toward ETFs and in terms of valuations, the OAS of the €-IG index was 3bp tighter over the period, while the PE HY index was 16bp wider.

High yield

The loan repricings also mean that buysiders are hunting in the high yield market.

France-based jewellery retailer THOM went to market with €850m of sustainability-linked SSNs due 2030, split across fixed and floating tranches, with proceeds used primarily to refinance €250m SS FRNs due 2026 and €370m SSNs due 2026 and fund a €204m dividend to the shareholders.

The €350m SS FRNs due 2030 priced at E+400bps at 100, with the €500m SSNs due 2030 priced at 6.75% and 100, in both cases the tight end of initial price talk.

Even though buysiders had mixed feelings about the company, which specializes in affordable jewellery, fierce competition has people putting their money to work where they can.

“I like it,” said a buysider. “We have macro concerns around Italy exposure. It’s quite brave if you haven’t done it before. We went for it. We're not getting any allocations on repricings where we weren't already in the name.”

“Recession risk is still something to be aware of [even if sentiment has improved],” a second buysider said, noting cyclicality. “Not sure if retail, specifically a single B, is something I want to be in right now. Divi recapping now doesn't look good — you're taking money out of the business for a reason.”

For more on THOM, be sure to dive into 9fin’s Credit, ESG, Legal and Financial QuickTakes.

Cirsa’s recent high yield offering saw similarly strong execution. The Spanish gaming company priced a new €450m SSN due 2029 at 6.50% and 100, as well as a €200m tap of its existing E+450bps SS FRNs due 2028, which was priced at 101.25.

The deal funds the refinancing of the €30m May 2025s, along with a partial payment on the 10.375% November 2027s, and partial repayment on the October 2025 PIK toggle. The transaction was upsized by €50m during syndication, allowing the company to repay €200m rather than the originally planned €150m of the PIK.

“Cirsa is the sleep easy name of the gaming sector. If you're a fund that's in gaming – and there's a decent bunch who can't for ESG reasons – you're in this one,” said a buysider. “Things are trading so tight and primary is so full of repricings that we're being forced to look at cuspier credits in secondary, things in the 80s that we usually wouldn't go near.”

UK-based insurance broker Howden increased its $1.25bn in dual tranche SSNs and SUNs due 2031 and 2032 to $1.5bn, split across $1bn (from $750m) SSNs due 2031, with revised price talk at 7.250% (from 7.375%), $500m SUNs due 2032 with revised price talk at 8.125% (from 8.375% area), and $500m SUNs due 2032 with revised price talk at 8.125% (from 8.375% area).

It also launched a speedy loans process, with multi-tranche cross-currency TLBs to complement its SSNs. This includes a $3.435bn TLB due 2031 with price talk at S+325-350bps and 99.5, €660m TLB due 2031 with price talk coming in E+400bps at 99.5 as well as a $1.08bn TLB due 2030 with price talk around S+325-350bps at 100. Commits were due just three days after launch.

Meanwhile, Copeland (a spin-out of Emerson’s heating, ventilation, air conditioning and refrigeration manufacturing division) priced add-on transactions in dollars and euros. The bonds funding the partial refinancing of its TLB, which is being repriced at the same time. The $500m SSNs due 2030 at were priced at 6.625% and 100.75, with the €230m SSNs due 2030 at 6.375% and 104.25. The loan repricing looks set to land at $1.52bn with a 250bps margin at 99.875.

And rounding out high yield activity, INEOS wrapped up its tender offer targeting its 2.125% November 2025 SSNs, 3.375% March 2026s, and 2.875% May 2026s (offering 98, 99.25 and 98.25 respectively).

The company priced its $725m SSNs due 2029 7.50% at 100, as well as €850m SSNs due 2029 priced 6.375% at 100. Alongside the bonds was a $500m TLB due 2031 priced at S+375bps and 99 and a €425m TLB due 2031 priced E+400bps and 99.

Leveraged loans

Repricings are undoubtedly still a hot topic and competition is still fierce — something felt across the market, and worrisome for the private credit funds looking to deploy.

“There are six repricings in play in market, E+375-400bps spread at par,” said a direct lender. “Private credit needs 100-150bps premium on top of that. Bankers seem to be spending 80-90% of their time on repricings at the moment.”

But investors at least saw a varied slate of deals this week.

Amer Sports is the latest, announcing a dual-currency TLB after its US IPO. The Finnish-based company, which owns brands such as Wilson and Arcteryx, launched a a $600m TLB due 2031 (with price talk around S+325-350bps at 99) and a €600m TLB due 2031 (with price talk at E+350-375bps at 99.5).

“They’re across quite a few sports, and aspirational ones, so people are willing to pay up,” said a buysider. “I don’t think we’d play a single brand, but it’s a portfolio of brands across fashion and sports. They’re following a program of doing direct to consumer [opening stores] which should be boosting margins. Peak Performance is big in the US, but not as big in Europe — it has these regional differences.”

The question may be more about pricing, as talk is already well below its current 450 bps margins.

“This will be a pricing issue for us,” said the buysider. ”We’ll see where leverage comes out and how tight pricing goes.”

In the same arena, Dutch artificial turf producer TenCate Grass is pitching a dual-tranche 2031 TLB deal, split across $835m and €350m, following its leveraged buyout by US-based private equity firm Leonard Green from existing sponsor Crestview Partners.

It is being marketed on an EBITDA of $206m as per September 2023 (described as “pretty clean” by a buysider) and net leverage figure of 5.1x. The deal is garnering mixed opinion among buysiders, as one said: “[TenCate] isn’t really exciting me. In fact, it’s probably the one we’re least interested in amid busy primary.”

Nevertheless, others spending time on it were complimentary — a second buysider claimed that they’d been following it for quite some time and “like it.” They also noted a strong ability to pass through costs to end-users and high barriers to entry.

Whether investors are getting comfortable with turf or are desperate to place paper, TenCate is ticking along – commits are now due February 7, a day accelerated from its original timeline.

Read our full loan preview here, and dig into the deal more with our 9fin Loan Legal QuickTake.

While there was some speculation it could be a private credit play, it’s stuck around the BSL market – indicative of the trend we’re going to be watching closely.

“I think [syndicated markets] are offering more certainty of execution now,” said a sellsider not involved in the deal. “Six months ago I’d say this is going to private credit.”

Reusable packaging container company IFCO is also out with an A&E of €1.640bn TLB due May 2026, with price talk at E+400-425bps at 99.5.

There are some questions around high capex as well as exposure to potentially volatile resin prices, but with a strong market position and working in an industry with low cyclicality, buysiders have found the credit relatively straightforward (we’ve got more on IFCO in 9fin’s ESG QuickTake and Loan Legal QuickTake).

“It’s largely a pricing exercise, not that there are many credit concerns,” said a buysider.

Swedish web hosting company group.one is also in market seeking a €430m TLB, with price talk around E+425-450bps at 99.75. See 9fin’s Loan Legal QuickTake on the deal here.

Finally, UK-based education group Cognita repriced a €1.160bn TLB at E+425bps and 100, as well as raising a €100m fungible add-on to the same facility to repay RCF drawings.

Beyond the new launches, a few of the January deals wrapped up syndication this week:

Safetykleen upsized and priced its €556m TLB to €660m due 2027, priced E+400bps at 100.
Banijay priced its €555m TLB E+375bps at 100 as well as a $555.8m TLB E+325 at 100 OID.
Kantar priced a €1.235bn TLB E+450 at 99.5.