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European LevFin Wrap — Bulging stocking in loans, Synlab finally launched
Karis Hustad
+Ryan Daniel
•7 min read
Some might have expected to be winding down and exclusively scoffing on mince pies at this point in December, yet there has been an unusually large platter of levfin primary instead.
A buysider said: “Some of the analysts have reached out to the syndicate desks to delay deals until next year. We’re tired.”
Powering the conveyor belt of deals is the window of macro positivity we find ourselves in; issuers appear unwilling to risk waiting until January. It’s hard to blame them given how quickly we’ve seen narratives shift over the past few months. The market currently seems fixated on potential rate cuts, yet the summer was peppered with “higher for longer” angst.
It’s a similar story across the pond too: Deutsche Bank’s Jim Reid points to US HY spreads reaching their tightest levels in over 18 months. Futures are pricing in a 66% chance of a Fed cut by March as of this morning — and a 75% chance of an ECB cut by March.
Higher EHY inflows is another indication of how much sentiment has improved. According to Barclays Credit Strategy, we saw a fifth consecutive week of significant inflows (84th percentile), cumulating to 3.5% of AUM — split evenly between mutual funds and ETFs.
Synlab is one present under a packed Christmas tree, as syndicates rush to get deals across the line before the holidays.
Cinven went to market seeking a chunky bit of financing, including a €900m TLB alongside a €550m high yield bond to fund its second buyout of the German medical diagnostics company and pay back its existing TLA. There’s also a €500m holdco PIK note provided by four private credit firms. Cinven previously owned Synlab before listing it in 2021, but formally announced it wanted to buy back control of the company in September.
The timing of the deal surprised some who might have been expecting/hoping for a lull before the festive period. But given Synlab’s history in the market, a sellsider, not on the deal, said the late launch made sense.
“Synlab has been in the market since 08/09. If it was a completely new issuer, things would be more difficult,” they said.
Despite Synlab’s segment of clinical labs being described by sources as more defensive, labs more broadly have had a tough time post-Covid. A buysider said: “It had a sharp decline from Covid but it’s now normalising.”
Driving the deal is Cinven’s take-private of Synlab — two years after listing the laboratory operator in an IPO. A second buysider highlighted that the deal is still yet to be fully finalised — Elliott Investment Management is holding out as it reportedly believes Cinven’s offer is undervaluing the business.
Price talk for the TLB is guiding towards Euribor+475-500bps and OID of 98 — causing some to sit up and take interest. There is no price talk on the bonds, as yet.
“Pricing is extremely cheap for its rating,” the first buysider said. “It’s almost as if the market is treating it like a B3 despite the B2 rating. People must be forecasting a meaningful increase in leverage.”
The loan leg of the deal was launched last Friday, and banks circulated price talk of Euribor+475-500bps and OID of 98 on Monday. The bonds followed on Thursday, €550m of 7NC3 SSNs, with the package expected to wrap up next week.
Beyond the Synlab splash, Loxam, a French equipment rental company, brought €600m of 5.5NC2 SSNs to refinance its 2025 SSNs in full. The deal is leverage-neutral.
While the company is the market leader in Europe and fourth largest in the global equipment rental space with healthy EBITDA margins, there is high exposure to the construction market (58% of FY 22 revenues) and an underperforming Nordic market due to a severe drop in residential construction. An overall slowdown in the new build market has encouraged Loxam to reduce capex in order to preserve cash — year-to-date (YTD) fleet capex fell to €411m vs €527m last year. FY 23 capex is guided at €500m.
French telecommunications company Iliad also issued €650m of 2029 SUNs yielding 5.375% this week, to fund a tender offer on €600m of 0.75% February 2024s and €650m of 1.5% October 2024s. It is offering 99.5 for the February 2024s and 98.1 for the October 2024s. The issuer had a book of €1.7bn for the new offering.
The funds will “enable the Group to continue to benefit from the improved market conditions seen during the end of this year,” according to a statement.
Weekly high yield movers
Leveraged loans
KKR-owned software firm BMC Software is wrapping up an TLB A&E deal (2025 to 2028) that straddles both sides of the Atlantic. The deal originally targeted $2bn and $1bn-equivalent of euros, but was increased to $3.09bn and €1.5bn in an update on Thursday, which is sufficient to extend the whole facility on both tranches, leaving no 2025 stubs in place.
The deal was originally marketed on an EBITDA of $987m, first lien leverage of 5.5x and net leverage of 6.5x, according to buyside sources. Find 9fin’s full preview here.
Lenders praised the company for its customer stickiness and ample liquidity, though there were concerns about leverage. A first buysider noted that “despite high EBITDA, two thirds of its cash flow is used to pay debt. Its relatively flat EBITDA growth also suggests that it’s reaching a natural point of saturation in market share. It’s not quite a story where you think it will continue booming.”
Meanwhile, banks running the €375m TLB A&E (2025 to 2028) and dividend deal for 3i-owned Weener Plastics sped up syndication, tightened the OID and targeted the tight end of margin talk. Initial price thoughts were E+450-475bps and 98.5, with the final level on Thursday E+450bps and 99.
Investors speaking to 9fin were impressed by the company’s earnings growth and inflation protection despite questions over sustainability and meagre FCF.
A buysider said: “They're well embedded with their customers, usually in long-term relationships with blue chip names — and there's decent barriers to entry getting into the sector.”
Privately-owned port business Euroports is aiming to ship a refinancing before the end of the year, increasing its first lien TLB to €500m, replacing the €105m second lien with a smaller preplaced €70m facility, and repaying a shareholder loan and RCF drawing. Price talk is E+450-475bps at an OID of 98.0. “It’s detached from commodity prices, which makes it quite defensive,” said the first buysider.
However, there are ownership questions to contend with in the near future given a 53% ownership stake by R-Logitech, which agreed to sell its stake in the business if it cannot repay its €187m-outstanding 8.5% 2023 bonds, originally due to mature in March.
US-based Innio is still in the market aiming for €1.6bn-equivalent in dual currency debt to extend its 2025 maturities and finance the take over of Nes Wes. It also plans a dividend using its existing cash on balance sheet.
The Advent-backed gas turbine manufacturer has price talk at E+425-450bps at 98.5 OID for its minimum €900m 2028 TLB and S+425-450 at 98.5 for the minimum $500m 2028 TLB.
The company has a robust decarbonisation plan and engages with suppliers on environmental issues, but contrary to good practice, it has not undertaken climate scenario analysis.
Though it is viewed as a decent credit, one buysider passed given the difficulties getting involved with A&E and add-ons for a fund which isn’t already invested.
“No one is interested in all these new launches when we were hoping things would have quieted down,” the buysider says.
Relatable, dear buysider.
To round out the unusually busy end of year pipeline, dividend-driven add-ons have continued to pop up. Idemia, an French security services company, launched a €250m fungible add-on paying E+475bps to repay preferred shares and to pay transaction fees, while Spain-based Europa University Education Group is upsizing its fungible TLB tap to €95m from €60m at launch. The loan pays E+450bps.
Belgian human resources consulting group House of HR priced a €150m add-on on Tuesday, at E+550bps and 99, with proceeds used to fund near-term acquisitions and repay RCF drawings.
