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While bank CEOs pontificate in Davos this week, their subordinates in the leveraged finance trenches have had a flood of deals to work on, with 10 loans launched this week, largely repricings aiming to take advantage of strong conditions.
“Credit spreads are low and expectations for rate cuts are mounting. Companies with high cost of debt have to take advantage of this environment as it could turn out to be just a market window,” a senior banker said.
Davos im winter, Ernst Ludwig Kirchner, 1923
Strong market technicals and expectations for a rapid central bank pivot are setting the tone for the leveraged finance market, which is seeing borrowers rushing to cut margins on their debt as soon as their call periods are up.
According to 9fin data, January repricing flow has already outpaced 2023’s total repricing activity with more than €5bn of volume this month vs €2.1bn last year when only three repricing deals landed. See here for our report on repricing.
A senior banker said they’re expecting “more repricing and divi recaps to come in the next few weeks, but refis will take over this year as the 2025/2026 loan maturity wall is soon approaching.”
'Good news is bad news' for the market, with US jobless claimsand the UK CPI above expectations. This led to global bonds suffering some turmoil, with government bond benchmarks settling back to late-November levels.
Central bankers played their part, with some of them – mainly Atlanta Fed President Bostic – pushing the first rate cut “sometime in Q3”, in open contrast with market pricing – CME futures suggest a pivot in May.
A similar process has happened in Europe, where the ECB minutes from December meeting showed concerns over an early pivot which “which could derail the disinflationary process”.
CDS benchmarks softened a little on the sovereign disruption, with the iTraxx Crossover moved from 321 of last week to 334.
Leveraged loans
As noted above, repricing was the order of the day, with a flood of borrowers rushing to market seeking smaller margins. Merlin Entertainment was the one full refinancing deal launched in loans, bringing a new €200m euro TLB and $1.273bn dollar tranche due 2029, together with $400m of bonds to take out its existing €575m and $1.22bn 2026 TLBs.
Margins have been guided at S+375 and 99/99.5 OID for the dollar debt and E+400 99 OID for the euro leg.
Starting with the smallest repricing of the week, Group of Butchers (the most comprehensible name in leveraged finance) is in the market all with €387m 2029 TLB that includes a tiny €50m add-on. OID is offered at 99.97 with margins at E+425bps vs an existing coupon of E+450bps, while deal timing has accelerated, suggesting strong demand.
Corporate and fund services firms TMF Group and Tricor Vistra both hit the market, with TMF looking for a repricing across euro and dollar facilities of €955m and $400m, with new guidance at E+400-425bps and S+425-450bps.
Existing margins sit at E+450bps and S+500bps respectively, but no change has been applied to the margin ratchet – the deal features two margin step downs of 25bps each at 4.00x and 3.50x net leverage for the euro tranche, and one margin step down of 25bps at 3.50x for the dollar offer.
Tricor Vistra is also doing a dual-currency deal, looking toreprice the existing €816m and $598.5m TLBs maturing in 2029. The Hong Kong-based firm is seeking margins of E+400-425bps and S+400-425bps respectively vs the existing 475bps margin on both.
Another significant margin cut might come from the French Sebia, also in the market with a dual currency tranche. The medical equipment manufacturer is repricing the existing €900m and $250m 2027 TLB, with new margins of E+400 (from E+475) and S+425-450 (from E+475).
On Friday Dutch drinks packager Refresco launched a dual-currency pricing of its €1.53bn 2029 TLB (25bps down to E+400bps) and its $1.594bn 2029 TLB (50bps down to E+375bps).
UK-based industrials firm Rubix and German “route-based sanitary solutions” (toilets) firm TOI TOI & DIXI also launched deals to reprice their outstanding 2026 TLBs
Rubix aims to cut 25/50bps from E+500bps in its €1.47bn TLB, whereas TOI TOI targets a 50/75bps cut for its€510m E+500bps TLB.
The French Idemia Group landed on Thursday night guiding new margins at E+425 from E+500bps in its €1.8bn 2028 TLB - OID has been guided at 99.75/100.
The biometrics specialist firm has addressed its dollar debt last week and saved 50bps by pricing its $750m 2028 TLB at S+425bps from S+475bps.
The group ran an A&E transaction in June last year, pushing maturities out from 2026 to 2028. This deal came with six months soft call, expiring this month.
Moving out of repricings, Parts Holding Europe decided to switch from bonds to loans to repay €580m of existing SSNs due in 2025. The French firm isin market with a €580m TLB, with PT guidance revised at E+400bps from E+400/425bps – OID is stable at 99.5 – marketed on 3.6x net leverage and €319m EBITDA (LTM ending September 2023).
“If you’re already in the bond market, now makes sense to tap the loan market as the opportunity for lower rates is there,” a first buysider said.
The strong bid for loans has encouraged CLO managers and equity holders to call and liquidate deals, selling into the hot market, rather than hold off for a reset once CLO spreads recover further. This has led to active BWIC flow, though not everything seems to have hit ambitious reserve levels — see here, here and here for more coverage.
EHY primary couldn’t match the intensity of leveraged loan supply, as call protection means sponsors are stuck with expensive deals priced in the last two years. An investor said “on the supply side, sponsors prefer loans as they can be called and repriced so offer flexibility.”
“It would make sense if high yield bond spreads come tighter than loans as the market is coalescing around the view that rates have peaked. Even if the picture changes on when there’s a pivot or how many cuts are coming, this looks beneficial for fixed income investors,” they added.
German toilet paper and tissue firm Wepa priced a €250m SSN due 2031 at 5.625% annual coupon and 5.75% of yield to maturity to pay the outstanding notes maturing in 2026 and pay a cash dividend of €20m to shareholders. Pricing came in from 6% area IPTs, 5.75%-5.875% guidance to land at the tight end of the range.
At the end of the week, Kiloutou, a French equipment rental company, launched €250m of FRNs due 2030. IPTs are guided at E+400bps with OID at 99.5-100.
One of the biggest secondary stories was a credit which never originally troubled leveraged finance desks. This week, 9fin's distressed team has been immersed in the Atos SE saga, after the French cybersecurity and software firm's bonds plunged from the 50s into the 20s.
The debt tanked as the French newspaper Le Figaro reported the company has considered filing for a conciliation or mandat ad hoc process.
Read 9fin’s coverage here and here — there’s much more to come on this.
The Italian debt servicer doValue also tumbled in the secondary – and equity market – early in the week, as its restated 9-month results resulted in a €25.7m loss for its Spanish business.
DoValue updated the investors in an investor call on the 16 of January – listen and read here the full transcript.
