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As you’ve probably read about by now, Fitch downgraded the US from AAA to AA+. As well as the debt ceiling drama back in May, the ratings agency pointed to tax cuts and new spending plans which they estimate would ultimately bring debt-to-GDP ratio to 118% by 2025 (the median AAA rated ratio being 39%).

The decision was derided by many; Fitch’s overzealous decision to downgrade was particularly ironic given that market participants have alluded to a “Fitch premium” in the past, where companies usually receive a 1-2 notch ratings upgrade from the ratings agency.

All jokes aside, Fitch’s decision sparked some life into a lethargic LevFin week, showing all the signs of a market on (or preparing for) holiday. 

Looking across the Atlantic, the Bank of England followed last week’s central bank bonanza with a meeting of its own. As with its peers in Frankfurt and Washington, Threadneedle Street decided on Thursday to raise the key interest rate by 25bps to 5.25%, the 14th consecutive hike since the beginning of the last tightening cycle with glimpses of slowdown ahead. With inflation still well above the 2% BoE's target (7.9% in June) and a baffled MPC, derivatives markets are settling on a 5.75% rate by the end of the year.

However, the shift in emphasis from an expected raise of 50bps suggested that the light at the end of tunnel might come sooner than previously estimated by market participants, with some lowering their terminal rate forecasts to 5.5%. Nothing to celebrate yet, as the BoE's guidance stressed once again the “higher for longer” messaging, confusing traders that took a dovish message from the smaller hike. 

It should come to no surprise then that the two-year UK Gilt yield, more sensitive to rate changes, dropped as much as 14.9bps after the decision, with the pound falling below $1.27 against the dollar. Reflecting some risk-off sentiment across the global markets, the FTSE 100 closed down by 0.4% with homebuilders and real estates companies gaining some ground.

No new primary this week, but lots of action in the Altice complex, with the HoldCo notes in both SFR and International among the best performing bonds of the week, arguably a reflection of just how far into distressed territory they had fallen. 

It’s odd to see a rally on headlines like “Altice Suspends French Executive as Corruption Probe Widens” or the FT’s deep dive “Altice fraud arrests throw spotlight on Patrick Drahi’s elusive right-hand man”, but it’s arguably a case of selling the rumour and buying the fact — the plunge a fortnight back layered a whiff of financial impropriety on top of a capital structure that already looked shaky, and provided a catalyst for nervous holders to dump their positions. Perhaps the sense that it hasn’t got much worse in the intervening period allowed the bonds to melt up again — or perhaps it’s news that eager buyers are available for Altice’s media division.

Next week brings great excitement, in the form of Q2 numbers for SFR and International, and Patrick Drahi scheduled to answer questions on both calls. Investors across bonds and loans have largely danced to Drahi’s tune over the years, and the great man has not deigned to interrupt his busy schedule to interact with those who’ve lent him nearly $60bn. 

The FT relays this anecdote about the 2014 Numericable LBO: “Two people present at the deal’s London investor meeting recall Drahi regaling a packed room with a story of his struggle obtaining a small loan from a regional bank for his first deal, before quipping that borrowing nearly $17bn from the assembled bankers and fund managers was “easy” in comparison.”

This time, though, expect a grilling. Here’s 9fin’s results preview for SFR.

Less market-moving, though still significant, is the return of the Stada IPO/sale rumour. Bain and Cinven bought into the company in 2017 and grew it through a run of acquisitions mostly funded by an obliging bond market. Bankers were clearly pitching for some kind of realization around the back end of 2020 and in 2021, when it was seen as a top IPO candidate, though Bloomberg caught wind of a continuation fund deal. Anyway, with improving market conditions the IPO/exit discussions are back on — here’s a change of control analysis from 9fin’s legal team.

Earnings season rolled on from the sublime at Selecta (EBITDA up 21.1% yoy) to the ridiculous at DIC Asset (claiming that its property book would take writedowns of 4%-7% by year-end). 9fin has you covered — see this week’s earnings digest for these names as well as Trivium, INEOS Enterprises, Nexi, IGT, Teva, Lecta, doValue and Banijay.

US chemicals company Chemours launched a dual currency TLB due 2028; the euro tranche was the week’s most notable European loan deal. The €515m leg is guiding towards a margin of E+375-400bps and an OID of 98.5. 

The name follows AnQore (which we wrote about recently) and INEOS Enterprises as a chemicals name tapping the European leveraged loan market in recent months, despite investors worries of a slowdown hampering their cyclical business models.

The business is aiming to refinance its existing $762m and €332m 2025 TLBs as well “pre-fund a portion of the recently announced legal settlement.”

Back in June, Chemours announced, alongside DuPont and Corteva, that it would pay more than $1bn to settle claims that “forever chemicals” had contaminated public US water systems. The troubled trio received thousands of lawsuits from across the US, alleging that toxic chemicals were used in manufacturing and then polluted the environment and subsequently, drinking water.

Moody’s viewed the settlement as a “credit positive as it resolves a meaningful number of claims for less than expected” but nevertheless noted that there were a considerable number of remaining claims outstanding.

A buysider who is passing on the deal but is looking to take a “deeper look later on in secondary” said that: “We noted that this one is quirky due to some use of proceeds.”

Elsewhere, German tech company Software AG landed on final pricing of E+475bps and OID of 98.75 for the €640m euro leg of its 2030 TLB — tightening from price talk of E+500bps and OID of 97). Meanwhile, the $405m dollar leg ended at S+475bps and an OID of 99 — tightening even further from “final terms” of 98.75 (tightening from price talk of S+500bps and OID of 97).

As 9fin reported earlier in the week, the company also conceded doc changes including adding in EBITDA adjustment caps, quarterly lender calls and an annual budget, and rescheduling the ticking fee from a wildly off-market four month holiday to a more reasonable 45 days. Some of these were arguably a little cosmetic — dropping the margin stepdown at 2.5x leverage is a win of sorts for investors, and takes the deal from an aggressive three stepdowns to a market standard two, but surely sponsor Silver Lake would be taking a divi by then anyway?

Still, the pricing underlines the strength of demand for the transaction, one of very few new names bringing new financing in size to European leveraged credit this year, so it’s no surprise that some of the docs give-ups were marginal.

Silver Lake is well known for having super-aggressive documentation, but this is balanced by a strong reputation as a tech investor, with several investors in 9fin’s preview citing the sponsor as a positive reason to get involved. Even if some lenders were more sceptical about Silver Lake, the sponsor has been invested in the company for more than a year, with a board seat, and is putting in 66% equity — that’s a pretty strong statement of confidence in the company’s prospects.

You can find the full list of concessions here. For a more fulsome analysis of documentation pushback across European leveraged loans last year and in the first half of this year, our legals team have taken a look at the major trends across the year. Lots of A&E deals meant lots of 2017-18-vintage transactions loosening up still further, but some of the more problematic credits had to give ground to get their extensions away.

Also wrapping up this week was a dual-currency A&E for radiopharmaceutical group Curium, a borrower addressing not 2025 maturities, but 2026 and 2027s, pushing these out to 2029 while there’s still capacity under CLO WAL tests.

This was another successful print, with a small size increase ($1.07bn vs $1.06bn and €325m vs €300m) and tighter pricing (margins of 450bps over Euribor and SOFR vs 475bps, OID of 99 vs 98.5). It’s a B3 credit, though in a solid sector with a high margin, defensible business — rating agencies, however, flagged the rather large amount of PIK debt outside the restricted group (a further €100m added in March this year taking the total to c. €440m, according to S&P).

Rain Carbon priced an extension of its €390m TLB to October 2028, in a rather less successful transaction — the margin landed at the wide end of the 475bps-500bps talk and the deal was downsized from €390m to €353.5m. This came alongside a 12.25% $450m 2L SSN to partially refinance the existing 7.25% 2L SSNs due 2025.

Canadian beauty and personal care company Knowlton Development Corporation also brought euro-denominated supply, in the form of a €460m tranche in a broader refinancing package. The much larger dollar leg was more complex, with a planned bond dropped in favour of an increased TLB. Some investors gave 9fin their views here.

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European LevFin Wrap — Software scores, but market lull looms

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