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Ryan Daniel

Alessandro Albano

If the current tightening cycle was a Netflix TV show, investors would certainly be hoping we’re near a series finale (don’t worry, no Top Boy spoilers here).

Let’s start off in Europe where the ECB hiked for the 10th consecutive time, bringing the deposit rate to 4% — the highest level since the central bank’s creation in 1998.

Lagarde wouldn’t confirm whether more episodes are in the offing — refusing to say whether rates have reached their peak. 

Deutsche Bank Research’s Chief European Economist, Mark Wall, said: “A lingering pause is being signalled, but it’s a low conviction pause. The ECB has retained the option to hike further if necessary. There is no declaration of victory on inflation.”

The ECB signalled that it will keep interest rates at sufficiently restrictive levels “for as long as necessary” — forecasting inflation to go back to 2% only in 2025, updating its projections higher for both 2023 and 2024.

Moving stateside, the latest US CPI print saw a rise of 0.6% in August (the biggest monthly gain in more than a year) and up 3.7% year-over-year.

This print gives Fed officials further food for thought as they prepare to meet later this month. Energy prices continue to rise (single biggest contributor to the monthly gain in CPI was gasoline, accounting for more than half of the increase). What’s more, each step closer to $100 per barrel increases the likelihood of sticky inflation over the coming months.

Core prices (which exclude volatile components like energy and food) rose 0.3% in August — also above forecasts and up 4.3% year-over-year. Shelter costs continue to pinch — advancing for the 40th straight month.

Even if sentiment seems to be improving in the market around a lower peak rate, recent data suggests that we still have some way to go before we see cuts either side of the pond.

Are you still watching? Seems like we will be for a while.

French retailer, FNAC Darty, was certainly met by the reality of higher rates this week — ultimately deciding to withdraw €300m of 6NC2s after price talk in the 5.625% area. 

It’s admittedly much higher than the 2.625% achieved for the 7NC3s in 2019 but a lot has changed in the market (and world) since then.

A sellsider suspected that the company was too aggressive on pricing — using a baseball metaphor of unsuccessfully hitting the ball: “My sense is they just whiffed on price.”

The miss is particularly confusing for investors given similar coupons other BB+ names have achieved since primary reopened — Rexel at 5.25% on its €400m of 7NC3s and ZF Europe at 6.125% on its €650m of 2029 notes.

“After a very well attended marketing exercise, I’m surprised,” a buysider said. “5.625% for a double B is very aggressive pricing. Looks like FNAC are hoping to wait a bit, let rates cool down, and then come back to market.”

The French retail chain sent a press release — which like the deal itself, required some more reviewing before circulating to investors — citing “current market conditions not enough attractive”.

The company has a clear financing alternative — its Delayed-Draw Term Loan (DDTL): “An undrawn bank credit line of €300m dedicated to the refinancing of outstanding May 2024 senior bonds. The DDTL has an initial maturity of December 2025, with a possible extension to 2027, upon lender approval”.

A second sellsider said that coming to market with new bonds wasn’t the only option for FNAC Darty, hence the decision to back out. However, they were concerned by the impact on sentiment in the primary market — especially as the credit story wasn’t an easy one to begin with.

“It does not send the right signal as pricing was not attractive. It's also an unattractive company given EBITDA and revenues are in decline plus cyclicals are not welcomed right now.”

Sticking with the French theme, content creation group Banijay came to market with a dual-currency bond deal of 6NC2s. You can find our preview from earlier on in the week here.

The $400m leg came in at 8.125% (tightening from IPTs of low-to-mid 8s) whilst the €540m tranche settled at 7% (also tightening from IPTs of mid-to-high 7s).

“It’s a solid name, so I wasn’t surprised it tightened,” said a second buysider. “You have to accept these things.”

A third buysider was less zen: "Unhappy with how much Banijay tightened, all the way from guiding mid-to-high 7s while the index yields mid 8s. Guess this is one I could sell on the break and collect a point or so."

Rounding off the major EHY deals from the week, America beauty products manufacturer Coty issued €500m of 5NC2s — final pricing at 5.75%, tightening from initial price talk in the 6% area. 

Finally, Macquarie AirFinance flew into market with little turbulence. The Irish aircraft leaser came to market with $500m of 6NC2s — pricing landed at 8.125% after talk in the 8.25% area.

Carlyle/GIC-backed specialty chemicals firm Nouryon attacked the stubs that were left in the May transaction and proposed to extend the maturities of the outstanding portions ($739m and €94m) of its TLBs from October 2025 to April 2028, folding the stubs into the extended facilities.

Pricing on the dollar TLB was revised to SOFR+CSA+400 with a 0% floor and 99 OID (vs. 98.5). On the euro tranche, OID was tightened to 99 (vs. 98-98.5), with an E+425 margin and 0% floor. 

For those wondering why Nouryon returned for another A&E so quickly, a source close to the deal told us the “vast majority” of the euros extended last time, as did “a very large piece of the dollars”.

“While it remains a challenging backdrop in the chemical sector, the lenders have expressed confidence in the company since the last exercise (and hence the loans have traded up), which has opened a window to do a further extension.”

“We'll likely see other companies tackling the stubs in the same way as Nouryon,” the sellsider concluded. 

“We're seeing an increase in tighter OIDs, a sign of confidence in the market,” another sellsider told 9fin, but that doesn’t seem the case for Platinum Equity-backed Awaze (9fin analysis here).

The British hotel management company was in the market with a €350m TLB A&E, pushing its maturity out three years to May 2028. Price talk of E+475-500bps (vs E+400bps on the existing TLB) at an OID of 98 wasn’t met enthusiastically by investors, hence the revision to E+500bps margin and 96 OID. 

The company tried to win over existing lenders with a partial par repayment, plus a return of some of its recent divi recap, hoping to overshadow a “noisy” cap stack and an asset sale that significantly cut the company size down.

On a more positive note for market sentiment, this week saw the return of a repricing deal after a wave of A&Es. 

Nord Anglia Education is currently trying to reprice its existing EUR/USD TLBs due January 2028. The borrower is looking to cut margins on its €1.515bn TLB from E+475bps to E+450bps and on its $906m TLB to S+400bps from S+450bps. 

Another possible bullish turn of the market, French software and cloud services provider Cegid is proposing a €700m non-fungible add-on to fund a dividend to shareholders. 

Guidance on pricing is E+425-450bps with 0% floor, 99 OID and soft call at 101 for six months. Cegid’s existing TLB offers E+350bps, 99.5 and matures on July 2028.

Last but not least, Birkenstock, the German shoe manufacturer known for its sandals and in the spotlight again after Barbie, filed for IPO in New York this week seeking a valuation of almost $8bn. 

It comes two years after Catterton took over the company with the help of LVMH CEO Bernard Arnault at a valuation of roughly €4bn — suggesting that exit opportunities for sponsors are improving.

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