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European LevFin Wrap — Pipeline clouds gather after a sunny Q3

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Market Wrap

European LevFin Wrap — Pipeline clouds gather after a sunny Q3

Karis Hustad's avatar
Laura Thompson's avatar
  1. Karis Hustad
  2. +Laura Thompson
7 min read

It’s no longer raining repricings — this week investors weathered a notable doc change request, alongside LBO, acquisition and recap financings, with a shower of pre-marketed transactions.

However after a particularly sunny Q3 for loans and bonds, investors are forecasting a partly cloudy pipeline.

“There have been some bad quality deals — we’re passing on quite a lot,” said a buysider. “I’m sure there will be bits and pieces with some refinancing activity, but in terms of new LBOs I don’t think there’s a whole lot.”

“There are hardly any credits left in the maturity wall for 2026 and 2027; it’s the more problematic credits remaining,” a second buysider told us in our Q3 high yield report.

A few bits and pieces on our radar include the pre-marketing of a $2.1bn-equivalent financial services unitranche refinancing, a French education TLB, and a British construction company’s SSNs. Also in the pipeline: transactions in the packaging, business services and infrastructure space.

We’ve also been hearing of a renewed interest in recaps — the market recently showed enthusiasm for debt-funded dividends for B&B Hotels, Belron and ERM. With CLOs continuing to print — new issue European CLO issuance YTD is up versus 2021 — and less enthusiasm for new names that could hit the market, investors are more comfortable putting money to work with what they know.

“People will always support a performing credit,” said a third buysider.

It comes after a strong Q3 in terms of issuance for both high yield bonds and loans. According to our report, 2024 has produced the highest volume Q3 of the decade for high yield. Similarly, €33bn of euro loans were issued in Q3 24 — on track to exceed 2021 by year-end.

Chart by Alexandros Chatzigiannis

There are still issuers seeking to take advantage of market technicals. Typifying this, Swedish engineering consultancy Eleda repriced its TLB and DDTL facilities, which were just refinanced away from the private credit markets back in February.

Its €765m TLB and €153m DDTL, both due 2031, were priced at E+400bps at 100 from the previous E+450bps.

“It really is a sign of the times,” said a fourth investor. “We played the original deal, but it was a marginal call for us back then. And now after already cutting their financing costs in the original deal, they’re already getting more off? Fair play to them. The market is in need of supply.”

Under control

With new money still elusive, portability is a priority for issuers and investors — something evidenced by German energy service provider Techem this week. The company came to market seeking a change of control waiver request, just after Techem’s €6.7bn acquisition by TPG and GIC was announced (it is expected to close early next year).

Investors have been offered a 25bps consent fee if they agree by the early bird deadline of Friday 11 October at 5pm London time and 10bps if they agree by the final consent deadline of Friday 18 October at 5pm London time.

While investors noted that the request in and of itself isn’t unusual, there was disappointment over the low margin to stay in a popular name.

“I would require more than 25bps for consent to be honest,” a buysider told us. “But I think the majority of investors will be okay with it and it will go through.”

“It’s a well-liked name and it's a strong market backdrop so people wouldn’t want to risk losing the paper if they were replaced with new lenders,” added an additional buysider.

High yield

The slightly slushy pipeline comes after a gangbuster quarter for high yield bonds. This was partly driven by LBOs — six hit the ground last quarter, accounting for 20% of issuance — though still dominated by refinancings.

There was a sense of urgency. Issuance particularly skewed toward the end of September, as rate cuts began and uncertainty surrounding the US elections in early November and conflict in the Middle East continued.

“For high yield, we’re guiding towards a busy October and then a quieter period until year-end,” a sellsider told us.

Despite the busy quarter, investors felt squeezed by pricing as inflows to the sector were strong over the last year — according to Barclays research, EHY has now seen over €6bn of inflows YTD. Spreads for risk assets remain tight, with the iTraxx Crossover ending September 2024 at 307bps, a 19bps tightening from the end of June 2024 and a huge 123bps contraction YoY.

Other trends of note through Q3 24 include a dominance of single-B issuers and the FRN comeback. Read 9fin’s full report here.

In the meantime, this week continued to be busy in the high yield space. Telecoms provider United Group was initially out with €700m SSNs, which was then upsized to €750m and priced at 6.5% at 100. Pharmaceutical company Stada also priced a €1.25bn dual tranche SSNs/SS FRNs, with €650 SSNs at 5.625% at 100 and €600 SS FRNs at E+375bps at 100, amid discussions of a potential IPO or sale, as reported by Bloomberg.

There are no high yield bonds currently in market.

Here’s a look at what’s priced this week:

Credit: 9fin

Weekly high yield movers

Credit: 9fin
Credit: 9fin

Leveraged loans

Investors in leveraged loans found a slight reprieve this week from the wave of repricings.

Banks debuted a €350m TLB and €70m DDTL for German packaging company Fischbach. Price talk is at the wider end — E+475bps at 98-98.5 — as investors grumbled about the DDTL being used to fund earn-outs.

Hellman & Friedman is seeking a refi for its German automotive digital marketplace AutoScout24. Price talk for the €1.5bn TLB is at E+375-400bps at 99.5, and the price talk for the $1.06bn TLB is at S+350bps at 99.5.

Nordic Capital-backed Advanz Pharma is also out with a €725m A&E, pushing maturities out from 2028 to 2031. Initially the transaction was thought to finance an investment in the company by Ontario Teacher’s Pension Plan (OTTP), however it was recently announced that the two sponsors allowed the transaction to lapse.

German packaging services company Xsys priced a €250m add-on to fund an acquisition this week, pricing at E+425bps, with OID all the way down at 96.5. While investors praised its high margins and cash generation, the main concern was whether this transaction puts too much debt on a challenged business.

“It feels like you're rolling the dice on something that's already over-levered,” said a seventh buysider.

"We passed, mostly because the carve out from Flint isn't wrapped up yet,” an eighth lender said. “There's stuff to like, but leverage is high at the moment and we're really wary of potential CCC risks.”

See full cap table for the deal here. (Jefferies and Lone Star Funds declined to comment on investor feedback. Barclays, Natixis and Xsys did not respond to requests for comment.)

Investors also sunk their teeth into a €495m TLB financing the buyout of Europe Snacks, with commits due today. While the potential for new money in a growing industry proved tempting, some lenders were stuck on the company’s heavy debt burden and reliance on a few key customers. See our full write up here.

Here’s a look at what’s currently in market:

Credit: 9fin
Credit: 9fin

Weekly leveraged loan movers

Credit: 9fin
Credit: 9fin

Forward pipeline

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