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Alessandro Albano

The European high yield market has been shut for almost a month now, but this week central banks' synchronised move on rates might have given borrowers a glimmer of hope. 

According to a sell-side source, investors could see two HY deals coming to market next week. Both are expected to be BB names — one refinancing (plus some new money) and the other dependent on market conditions.

Another BB HY refi is expected the week after, with a single-B name that could land in the market at the end of the month to raise new money.

Two more bonds have been strongly signalled, with INEOS Quattro and EG Group both announcing “other secured debt” in their loan announcements (more on that later).

Meanwhile, Switzerland-based chemicals company Cerdia is holding a non-deal roadshow organised by investment bank Jefferies, according to two people familiar with the matter. For the first source, the move was interpreted as a sign that the cigarette filter company is considering a new bond or a dividend recap. Read more here. 

HY’s improving outlook follows this week’s central bank bonanza — both sides of the Atlantic holding rates for the second meeting in a row. 

Echoing the ECB last week, the Fed and BoE left their interest rates unchanged, but repeated the hawkish mantra of “higher-for-longer.” 

“How long is sufficiently long” remains a dilemma, but bets on lower rates in 2024 and lower than expected NFP numbers on Friday buoyed sentiment after three consecutive months of cross-asset sell-offs. 

Following the FOMC decision, US Treasuries had their best day since since March (10yr yield down to 4.5% from 4.9% at the start of the week) and the S&P 500 is poised to close the week up by more than +5%. 

One migraine for global bonds might come from Japan, where the BoJ is slowly abandoning its ultra-dovish stance. 

10yr JGB yields came down to 0.91% after touching their highest level since May 2013 (0.97%). The Bank of Japan announced an emergency bond-purchase operation following its shift away from yield curve control. 

Bond supply is subdued for the moment, but loans have been more active, helped by an active CLO primary calendar of new deals that need to ramp. This week has seen four CLOs priced at the time of writing (Palmer Square, Partners, Barings and MV Credit), with Five Arrows near pricing, according to investor updates seen by 9fin. 

French pharmaceuticals company Cooper Consumer Health is marketing a €1,105m 2028 TLB to finance the acquisition of Viatris’s European OTC (over-the-counter) business, offering E+475-500bps at 98 OID with a 0% floor. Commitments are due Thursday 9 November at 11am London time. 

Listed Viatris announced that Cooper had paid around 12x for the portfolio. One investor said: “Everyone likes the business but it’s a big new money raise. This multiple is fair given where these portfolios have been trading, but did [sponsor CVC] overpay for the original business? Some comps out there suggest the business might not be worth what it was three years ago.”

INEOS Quattro’s €2bn-equivalent dual-currency loan deal will be allocated on November 8. The TLB will be paired with €800m-equivalent of bonds, the first substantial high-yield notes since Italian packaging firm Guala Closures printed a €350m June 2029 FRN. 

EG Group is offering E+550bps and S+550bps for its dual currency $500m-equivalent fungible add-on TLB at 95-95.5, alongside possible bonds to follow.

“If you consider the loan price talk of E+550bps at 95-95.5, once you put that together you need bonds to be pushing double digits adjusting for curve,” said an investor. 

Joining the deal calendar somewhat further out, Aston Martin announced it will redeem 50% of the outstanding second lien notes in November using some of the £216m gross proceeds raised through a share offering. Management announced this redemption alongside Q3 results, also confirming the remaining notes will be redeemed through a refinancing expected in H1 24.

Given the 2L notes hold a 8.89% cash coupon and a 6.11% PIK interest element (not PIK toggle), it makes sense to pull these now, or face further equity dilution, 9fin's Josh Latham writes in his analysis. In any case, refinancing at the first call will be significantly cheaper than when $144m of the notes were repaid during the make-whole period last year.

London AIM listed Zegona is expected to launch one the biggest LBOs in years after committing to take over Vodafone Spain from its British owner for €5bn based on a lowly 5.3x EV/EBITDA multiple, or 3.9x adjusted EBITDA after leases, and 12.7x EV/OpFCF for the 12-month period ended 31 March 2023.

Zegona has a committed financing package of €4.2bn to support the bid, but not all of this will be syndicated bond or loan debt; it is also targeting an equity raise of €300m-€600m, in addition to €900m of preferred equity provided by Vodafone. 

The financing package currently features a €500m TLA, a €3.7bn corporate bridge loan, and a €500m RCF. Deutsche Bank, ING and UniCredit are bookrunners and underwriters, advised by Allen & Overy. Any financing is likely to land in 2024.

As we quickly approach year-end, European leveraged loan supply year-to-date has reached the lowest level since 2012 for a total amount of €26bn, down 17% versus 2022 according to a Barclays research note.

M&A/LBO transactions accounted for 40% of total supply this year, which Barclays estimates to be the least on record. A&Es have been the main characters with a total number of 45 as of August, nearly doubling the next highest year in 2012, Barclays noted.

The lev loan blues are poised to continue next year, as Barclay's expects A&Es, which do not count towards new supply, to dominate in 2024 as they've done in 2023. 

An ongoing concern, the bank wrote, is the increasing proportion of CLO funds exiting their reinvestment period, thereby potentially limiting their ability to participate.

LBO activity is expected to increase but should stand below average levels, the bank added, as financing costs remain a headwind — reflected in the current pipeline (see below) which remains light.

European LevFin Wrap — Central banks hold, bonds ready to burst forth?

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