“Which way are rates going, Elton?”

Powell stoked hawkish sentiment by saying Fed policy “has not been restrictive for long enough” — not ruling out consecutive hikes in July and September. It was a similar story for Lagarde who said the “baseline” was for the ECB to hike in July even if the bank has already “covered a lot of ground”.

A sellsider said: “Central banks won’t help anytime soon; their hand is being forced [by still too high inflation]. They will have to make it worse. They’re also breaking with the forward curve, not contemplating cuts for a long time.”

Despite the risk of higher rates, the sellsider maintained that companies should still consider coming to market.

“For companies with maturities in 2025, now might not feel like the perfect time but if you weigh that up against going next year with the risk of recession or even higher rates, perhaps the preferable situation is right now?”

High yield primary

British plastic and synthetic rubber producer Polynt-Reichhold was this week’s big EHY deal — offering €300m of SSNs to fund a dividend payment to sponsors Black Diamond. 

Final pricing floated to the wider side, settling at 9.5% from initial talk of low-to-mid 9s.

“Pricing is a little wide given how cyclical the chemicals industry is; people want to get paid a premium,” said the first sellsider.

Opinions were split on the use of proceeds. A second sellsider questioned the timing of a dividend payment: “It’s aggressive to ask to dividend recap at this point.” 

The first sellsider disagreed: “The business has delivered since its debut high yield. I think it’s hard to say management can’t take money out.”

That said, the first sellsider pointed to potential macro headwinds that could be a cause for concern. 

“People are open to dividends as a use of proceeds as long as there’s no ‘red face factor’ for investors. Investors won’t want to dividend recap off a peak earnings number that makes them look silly in 2024.”

In a year of relatively subdued primary action, the second sellsider suggested that the lack of competition could work in Polynt’s favour.

“There’s so little out there so maybe the time to do this is now. Investors will take what they’re given.”

A third sellsider suggested that this deal getting done, albeit slightly wider, indicates that the market is in good health.

“Anytime you see companies that have generally performed doing a dividend recap, it shows that the market is open to deals. For a single B to do this and get pricing in the 9s, it’s a good result.”

Chemicals names have been weak in the past two weeks since IG giant Lanxess issued a profit warning on 20 June, one Chems analyst told 9fin. “It’s trickled down to my names and it’s part of why I turned down Polynt — just very bad timing for a recap,” they said.

High yield secondary

Digging deeper into performing credit, Swedish debt collection agency Intrum Justitia saw its €450m SNs drop five points over the week to land on a price of 85-mid. It comes fresh off Fitch affirming the company’s senior unsecured debt at BB and its outlook at Negative. 

The credit rating agency pointed to “medium-term structural pressures on Intrum's business model due to increased funding and collection costs and its leverage ratio […] remaining above the management’s stated medium-term target range of 2.5x to 3.5x for longer than previously anticipated.” 

Fitch also stated that “reducing the net leverage ratio to below 3.5x in the short term will be challenging, given current pressures on collection rates in most markets and Intrum's high dividend payout ratio.”

Elsewhere, Dutch pharma firm Organon had a much better week — its €1.25bn 2028 SSNs jumped four points to a price of 87-mid over the week. Its 2022 Sustainability Report highlighted progress towards its detailed ESG platform, Her Promise, and its related goals, aligned with the UN’s Sustainable Development Goals (SDGs).

Stepping back, the first sellsider felt it would be prudent for investors to look for alternatives to EHY in case there is a more pronounced slowdown.

“Looking at the market, we’re overall seeing tighter spreads but from a risk-reward perspective, I think it’s attractive for people to invest in subordinated capital of IG issuers via hybrids or AT1s.”

As always, check out the Earnings Digest and Friday Workout for more 9fin EHY content.

Leveraged loans primary 

Although they kept us waiting, we finally heard from EG Group on its massive multi-currency A&Es to address its 2025 and 2026 loan maturities.

All four tranches (€2.12bn, $2.79bn, £600m and A$378m) widened in price and margin from IPTs. OID settled at 96 (from IPTs of 96-97). The euro tranche saw margin tick higher to E+550 bps (from E+525-550 bps) and the dollars up to S+550 bps (from S+525-550 bps). The sterling tranche jumped to S+650 bps (from S+625-650 bps) and, finally, the AUD tranche rose to BBSY+550 bps (from BBSY+525-550 bps).

“During the last year and a half, pricing was always swinging towards issuers. It’s now swinging back to investors,” said the third sellsider.

In addition to looser pricing, we heard that there were some lender-friendly doc changes that tightened EG’s ability to transfer assets, pay dividends and reduce the margin (the ratchet was removed).

The third sellsider said: “EG ultimately needed to get something done; it’s good to see that happening. Even though it’s at a wider price point, it’s more important for management to get the structure extended.”

French identity technologies company Idemia Group also came to market with an upsized dual-tranche €2.2bn TLB A&E. 

The deal follows a record year for the company and is marketed on a bumper April 2023 adjusted EBITDA of €605m, having benefited from a chip supply shortage (which allowed the firm to hike prices) in the last couple of years.

A second buysider also praised the “consistent de-leveraging over the last couple of years” — from 4.4x in Q1 22, to 3.9x in Q2 22 and 3.7x in Q3 22.

That said, there were concerns around the sustainability of its EBITDA boom from a third buysider.

“I’m struggling to project this forward. If they’ve reported EBITDA in the €300m to €400m range over the past few years, would you expect 2023 to be like that or still at €600m? What will be the true leverage of this business?”

At the time of writing, only the USD tranche has priced — $750m (from $642m) and terms tightened. It settled on a margin of S+475 bps (PT of S+475-500 bps), OID of 98.75 (PT of 98) and 0.75% floor. 

British chemicals giant INEOS Enterprises also upsized on its €650m minimum (from €500m minimum) TLB due 2030. Margin tightened to E+400 bps (from E+400-425 bps) and OID of 98.5 (from 98-98.5).

Dutch margarine mammoth Upfield also had price talk on its €3.89bn multi-currency TLB A&E (2025 to 2028). On the €2.38bn tranche, the margin is guided towards E+475-500 bps and OID near 97.5. The $833m tranche saw margin guide towards SOFR+475-500 bps and OID around 97.5. Finally, the £656m slice had margin at SONIA+575 bps with OID in the 97 area. 

Adding to the mix, Ardian-owned engineering group Expleo is in the market with a €550m-equivalent dual-tranche TLB A&E due September 2027 (from 2024). The first tranche of €494m is guiding towards a margin of E+500 bps and OID of 96 whilst the £50m piece is pre-placed and guiding towards a margin of SONIA+650 bps and OID of 96.

“I’m not playing that,” said a fourth buysider. “It was weak during Covid and I think it will be weak in any upcoming recession — the new margins they’re offering will be very heavy on FCF and the working capital is too messy.”

Finnish specialty materials manufacturer Ahlstrom priced a downsized cov-lite €75m (from €100m) add-on TLB. The maturity remains at February 2028 — as does the margin at E+350 bps. OID edged lower to 93.5 (from the 94 area).

Last on the primary conveyor belt is, well, Dutch conveyor belt firm Ammega, who will come to market with a €850m minimum TLB A&E to 2028 (from 2025). Margin is guiding towards E+500 bps and OID around 97-97.5. 

Will more be launching soon? “For single B names that people like, it’s not prohibitive for sponsors to enter the loan market,” said the third sellsider. “Additionally, sponsors continue to favour how prepayable loans are.”

Leveraged loans secondary 

The second sellsider pointed to a secondary market where liquidity is tight due to “not that many buyers out there”.

“For the CLOs that are ramping up, it’s the usual names like CVC and Blackstone. It’s not like you’ve 30 managers out there doing it. It’s very concentrated and sporadic.”

Stark Group (no link to Iron Man for those of you wondering), saw its 350 bps 2028 TLBs down three points over the week to land at a price of 91.

Dutch flower supplier Flamingo Afriflora had its 575 bps 2025 TLBs bloom — up two points to a price of 88. The price increase is somewhat surprising (and potentially fuelled by opportunistic buyers) following last week’s Moody’s downgrade — as the rating agency cited weak liquidity, weak performance and refinancing risk stemming from the aforementioned TLBs and RCF maturing in 2024.

On the move

We’re continuing to summarise notable moves in our weekly wrap — please let us know if there’s anyone that should be mentioned.

Daniel Bates moved to Baird and has been their director of CLO trading since this February. He was at Credit Suisse as a CLO trader since 2021 and before that at Spire Partners for two years as a junior portfolio manager.

James Gray also moved to Baird in February, joining as a sales managing director. He’s also Credit Suisse alumni — having been there for more than 3 years — as an executive director within securitised product sales.

Rounding off the Credit Suisse exodus, after 22 years there as a managing director and co-global head of leveraged finance origination, Nishan Srinivasan has joined Ambienta as partner and head of origination.

Forward pipeline