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Karis Hustad

The market got a taste of what is to come with Alter Domus syndicating the financing for its LBO. After the fund administrator sailed through syndication, and with indications of a rosier macro picture ahead, some are asking, dude where’s my M&A?

Photo of copyright friendly reference to the 2001 Ashton Kutcher classic. Credit: Pexels.

Alter Domus dominated the market, wrapping up its €1.35bn-equivalent TLB with accelerated timing and pricing at E+375bps/S+350bps. It breaks the European TLB-standard 400bps base that the market had more or less settled on since the repricing craze at the beginning of the year.

“We looked at this in pre-marketing and believed that the floor was 400bps,” one source told us. “I was shocked to see a B3 name at 375bps.”

However, the deal came with a round of doc concessions to help lenders get more comfortable, including doubling the margin ratchet holding to six months, adding in quarterly lending calls and a ticking fee starting from 60 days (which is still, investors pointed out, longer than the more standard 45 days).

Nonetheless investors saw pricing as punchy — and perhaps not indicative of how all new money transactions will go this year.

“It works for banks and warehouses so it got away,” said a buysider. “I think most people would have balked at this, but due to this being a good window for issuing I think that they pushed it as far as they could. If there was more new issue, I don’t think they would get there and people would be selective.”

Read our full reports on the docs here and the deal here.

And where else is that elusive new issue? At the moment, most new money in the market is still being driven by private credit refinancings (see more on Advania and QSRP below), with sellsiders forecasting a few months before M&A truly rebounds.

“It will be more refi and market driven at least until June and then hopefully in H2 it flips to more LBOs,” said a sellsider.

Meanwhile, the macroeconomic picture seems to be growing more and more supportive. April CPI in the US came in slightly below expectations and the retail index cooled. While Fed speakers said that it will take more to be fully confident in cuts, markets still reacted optimistically, raising the odds of a rate cut by September to 61%, according to Deutsche Bank Research.

There was a knock on effect in Europe, with the probability of a June rate cut by the ECB going from 92% to 98%. The likelihood of cuts from the Bank of England and Bank of Canada in early summer also rose.

Will sponsors step on the accelerator? The light may not yet be turning green when it comes to M&A, but it feels like at least it’s turning amber.

Anticipated interest rate cuts could boon to the corporate bond market, according to Bank of America.

“In a world of lower ‘risk-free’ rates, demand for credit has rejuvenated,” said BofA in a research note. “When markets rally, spreads tighten and volatility subsides, corporate bonds exhibit better liquidity characteristics than during periods of stress.”

European high yield companies issued €24bn in Q1 24, which is over 2x higher than the €11.6bn issued in Q1 23, according to 9fin’s Q1 high yield bond report. With the high yield market being particularly quiet during the last two years of volatility it has left investors hungry for what’s to come.

Read more on the recent bond resurgence here.

Meanwhile, this week saw the sizeable deal flow continue. Italian gaming firm Lottomatica priced a chunky €900m dual tranche deal across SSNs and SS FRNs. The €400m in SS FRNs priced at E+325bps at par and the €500m SSNspriced at 5.375% at par.

In addition, Finnish airline Finnair priced €500m in SSNs at 4.75% at 99.63, while glass bottle manufacturer Owens Illinois priced €500m in SSNs at 5.25% at par.

Check out the other high yield deals from European issuers that priced recently below:

There is one high yield transactions still in the market:

Request 9fin's weekly high yield movers here.

The private credit to broadly syndicated loan (BSL) market refinancing trend has continued as IT infrastructure and consultancy firm Advania made its debut in the syndicated leveraged loan market, refinancing a substantial portion of its existing unitranche.

Originally, the company approached lenders for a €720m TLB with a €100m-equivalent sterling tranche to be pre-placed, but following a pre-marketing process, it opted to slash the syndicated portion tranche to just €375m and fund the difference through private placements across several currencies. It priced its TLB at E+500bps at 99.

While this was partially geography driven (Advania is Sweden-based and privately placed facilities in Norwegian krone, Swedish krona and sterling), it rings true with bankers’ predictions that we would be seeing more hybrid private and syndicated deals.

QSRP, the Switzerland-based fast food franchiser, is also out refinancing its unitranche facility, seeking a €500m TLB(as predicted). Price talk is at E+525-550bps at 97.

It seems there is also still room for the right recaps: CVC-owned Etraveli is out with a €260m dividend recap (as predicted), not long after its €465m divi deal in October 2023. Price talks are at E+500bps at 99.75-100.

Beyond deal flow, earnings seasons is bringing news good and bad for lenders.

Generative AI has been top of mind for people across industries over the last year — and now its impact is hitting leveraged loan credits. Outsourcing companies such as KronosNet and Foundever are amongst those feeling the heat twofold: their contracts, sometimes based on employing humans, could be displaced, and they are under pressure to increase capex to develop their own AI technology.

Read our full feature on the impact of AI on outsourcers here and catch the impact of KronosNet’s results this week here.

European LevFin Wrap — Altered docs help Alter Domus, missing M&A

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