European LevFin Wrap — A trickle of deal flow, a stream of stressed

Karis Hustad
+Ryan Daniel

5 April 2024•7 min read

The long-awaited post-Easter deal flow is more of a trickle this week, giving those watching the primary market a bit of time to eat the last of the mini eggs (or enjoy a half term holiday).

However, a stream of stressed credits is keeping investors busy after a first quarter that brought some confidence back to the leveraged finance markets — a bigger theme which we cover in our Q1 loan and bond reports.

While there are some signs of a better pipeline to come, this week eyes were on trickier situations that have overflowed from the end of Q1.

Shareholders to the Omani-owned OQ Chemicals suddenly withdrew support over the weekend — closing off a potential A&E of the company’s near-term maturities. Now lenders have been instructed to appoint themselves advisors ahead of an interest payment and — in a shift from the trend we’ve seen over the last few months — management hopes for a direct lending refinancing.

“Management has been taken by surprise,” a buysider told us. “They had been told the sponsor would be supportive.”

Plus, the fallout following Altice France owner Patrick Drahi’s controversial announcement continues. Secured creditors are now in talks to form a cooperation agreement, 9fin reported this week. Already, holders of nearly $12bn worth of Altice France secured debt (two-thirds of the group) have agreed to join the co-op.

Even though the contagion seems largely contained, it’s seeded doubts over the future of the company in the syndicated and high yield markets, as its debt stack touches a wide swathe of the market.

“I’m not massively surprised by lack of contagion as it's pretty idiosyncratic, but I would have thought there'd be more impact on technicals — such as forced selling,” said a buysider. “It’s hard to see them using a capital market solution to get out of this — I’m not certain Altice France could refi its 2025s.”

Dive deeper into the impact on CLOs, questions around directors' duties and questions on Altice’s unrestricted subsidiaries. We’ve also got a podcast episode walking through the knowns and unknowns of the situation — listen here.

Ardagh and Intrum also recently endured distressed-related sell-offs.

These situations have introduced some wobbles to the market after a welcomed positive start to the year, but some lenders argue that these incidents are isolated rather than indicative of the market heading into Q2.

“The degree and intensity by which these credits re-adjusted in prices was quite significant and quite fast,” said a second buysider. “But if you if you asked investors, did you think that these credits had issues at the beginning of the year? Most people would have said yes.”

Living la vida LBO

But it wasn’t all doom and designations, with new money finally coming to the market. UK-based production and distribution company All3Media launched a €500m (£430m equivalent) TLB as part of a £1.15bn total deal for RedBird IMI’s acquisition of the company. Price talk is at E+425-450bps at 99.

Fund administrator Alter Domus, which announced a strategic investment from Cinven in March, is also set to tolaunch €1.2bn loan-only deal, as well as a €200m delayed draw term loan (DDTL).

It’s another swipe from the private credit market, with the possibility of a unitranche dropped by sponsors earlier this year — but taking market share does have its price. Delayed draw term loans have historically been unpopular among syndicated lenders, as noted in our coverage of Eleda and Normec, but are widely seen as a way for syndicated markets to compete with private credit.

While still early in the quarter, there’s a sense the pipeline is filling up and there are sunnier days ahead — something reflected in our Q1 reports (which feature data, analysis and insights on the first few months of the year).

"I'm expecting in Q2 to see less repricing but more M&A-related transactions and equal volume of refinancing,” Daniel Rudnicki Schlumberger, head of EMEA leveraged finance at JP Morgan, told us. “There are deals and we're going to see more of them. The early signs are positive, it will filter to the market, but investors should not be expecting a wall of M&A to come in Q2. It's going to be gradual.”

Check out the Q1 loan report here and the Q1 bond report here.

High yield

HY inflows continued, though modest, during the seven-day period from Thursday to Wednesday (28 March to 3 April), according to Barclays. In euro-denominated investment grade (€-IG), inflows were driven by long-duration funds, whereas in pan-European high yield (PE HY), the 12th consecutive weekly inflow was driven entirely by ETFs. In terms of valuations, the OAS of the €-IG index was 2bp tighter over the period while PE HY was 5bp wider.

The continuous inflows to the high yield market indicate how hot the market has become.

According to 9fin data, there were €24bn of high yield bonds issued in the first quarter alone — more than double that seen in 2023 — buoyed by an unexpected shift in lender confidence as tighter spreads invigorated more borrowers to play their hand.

“I think the technical in the European high yield market is very good; we’re seeing variance in the types of deals coming through,” one sellsider told 9fin.

LBOs remain absent, but a sellsider foreshadowed this wouldn’t last long: “There’s gonna be more LBO activity late April onwards.”

Read more about what’s ahead for the high yield bond market in our Q1 bond report.

Meanwhile, this week Motor Fuel Group offered up the bond portion of its broader financing package that backs the £2.5bn acquisition of forecourts from Morrisons. It launched £400m in SSNs, with Deutsche Bank as the left lead physical bookrunner. It priced at 8.625% at 100 following price talk in the 8.75% area (+/-12.5bps).

Here are 9fin’s Credit, Legal and ESG QuickTakes.

HBX Group (Hotelbeds) priced a €125m TLD-2 fungible add-on at E+425bps and 100, in line with price talks.