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European LevFin Wrap – Sterling surprises, activity still elevated
Alessandro Albano
•7 min read
Leveraged finance bankers made full use of February’s bonus day, with several new issues announced across bonds and loans this week, and a building pipeline of premarketings being sounded with investors.
Earnings season is in full swing, freeing bond issuers to approach the market again (such as Aston Martinannouncing on Friday). Private credit issuers are still finding better funding in syndicated markets, while sterling seems to be seeing some rare positive traction, with a jammed orderbook for MFG.
But the furious repricing seen in January and February seems to have taken a pause, with prices finding an equilibrium, and lenders searching for incremental yield by moving into more adventurous credits.
“We’ve got equilibrium in the TLB market, we didn’t know where it would bottom out but we found this new level,” said a banker. “You never know how long these things will last. With lots of CLOs being raised, there’s potentially even more tightening later in the year but all it takes is something geopolitical to happen, and for most borrowers now it's a good time to raise financing, reprice, or refi.”
The Assassination of Julius Cesar, W.H. Sullivan, 1888 – Caesar was the first to introduce the leap year in 46 BC
After a steady grind tighter since mid-January, credit traded sideways this week, with Crossover 4bps wider on the week. Consolidations are natural after the strong run through the first two months of the year, and pricing out of US rate cut expectations appears to have been the proximate cause.
We are back in the dynamic of rate volatility 'made in the USA', Barclays noted, with markets that are now pricing 0.8 cuts from the Fed by June from 2.5x cuts at the beginning of the year.
Bets for an early pivot didn't pick up even after the positive US PCE core reading. The Fed's preferred inflation gauge rose to 2.8% on annual basis, the slowest annual increase since a 2.2% increase in March 2021.
However, short-term US inflation expectations have continued to move higher, as the US 2yr breakeven was up +1.5bps to 2.79% – the highest since last March – as of Thursday.
In the eurozone inflation remains stickier than in the US, with core prices rising to an annual rate of 3.1% in January from a market consensus expectation of 2.9%.
"Fed officials have signalled they do not need better news on inflation to cut rates, just continued good news," Michael Pearce, Oxford Economics deputy chief US economist, wrote in a note to clients. "With the trend in inflation still downward, gradual rate cuts this year are still on the table."
Leveraged loans
Thyssenkrupp Elevator and INEOS Quattro were the major new announcements in loans this week. The German elevator company is opting to switch out some dollar SUNs ($600m and $45m due 2028) for a new €500m 2030 TLB, while it is also pushing out the maturity on its existing $2.84bn dollar facility and adding an extra $100m to the size.
INEOS Quattro is offering dual-currency fungible add-ons to its dollar and euros 2029 loans, looking to raise minimum €700m equivalent to extend part of its 2026 TLB and refinance other 2026 maturities.
Motor Fuel Group’s funding for its Morrisons forecourt acquisition hit the market last week, but on Friday it showed that the sterling loan market is less moribund than previously expected, with an upsize from the original £800m-equivalent to £1.178m-equivalent, and tighter pricing on both currencies.
Talk for the €500m euro leg was tightened from E+450-475bps and 99 to E+450bps and 99-99.5, while the £750m sterling was tightened from S+575-600bps and 98 to S+575bps and 98-98.5.
B&B Hotels wrapped up this week, with the deal closing at E+425bps and 99 OID from initial talk of E+425bps-450bps and 99, but some docs changes. Lenders liked the company’s positive momentum and believed in the company’s expansion plans. But the loan was portable from day one, and portability conditions, as well as margin ratchets and EBITDA definition, were tightened up ahead of final pricing.
Dutch life science ingredients distributor Barentz should also finish up this week, with pricing on its combined euro A&E and new dollar facility tightened during syndication. Lenders had concerns over the company’s high leverage, but appreciated its relative stability compared to other distribution companies servicing the chemicals industry.
The Cinven-backed company is looking to push out the maturity of its euro TLB to February 2031, and raise a €485m-equivalent dollar tranche. Talk was tightened from E+400-425bps and 99.5 on the euros and S+425bps and 99 on the dollars to E+400bps and 99.75-par and S+400bps and 99-99.5.
Further out, we can expect French insurance broker April to close its private credit refinancing next week, while we’re also aware of a sizeable private credit refi in the healthcare space, a healthcare A&E, and a transportation-related dividend deal doing the rounds — more details available for 9fin subscribers.
Cash is still flowing into high yield (Barclays noted a seventh consecutive week of inflows) and issuers are taking advantage, where they’re able to do so following earnings, with two deals in the euro market this week, and more deals announced for next week’s execution.
Luxury car maker Aston Martin is intending to tackle its costly Covid-era debt stack in the week ahead — see here for 9fin’s take on its earnings and prospects.
French cable manufacturer Nexans is also readying a deal is also looking at the HY market, readying a €300m 2030 unsecured deal to refinance its €200m 2.75% April 2024s.
Forvia (fka Faurecia) a French automotive equipment supplier, confirmed the strong appetite for good quality notes as it upsized its planned €800m dual tranche offering of 2029 and 2031 SUNs to €1bn.
Like Aston, travel company TUI has a capital structure with some Covid-era hangovers, though it addressed most of them last year with a chunky €1.8bn rights issue. This week, it launched a €300m bond, intending to use the proceeds to pay down its credit line from German state development bank KfW.
The 5NC2 sustainability-linked SUN issue was clearly a blowout, with two upsizes to €400m and then to €500m, and pricing landed at 6.125%, through the tight end of the 6.25%-6.5% talk. The extra proceeds will be used to refinance its existing RCF drawings and further reduce the KfW line. 9fin’s Credit, Legal and ESG QuickTakes can be found here.
On Friday, the luxury sport car-maker Aston Martin announced the refinancing of its 10.50% 2025 SSNs as well as the 15.00% 2026 second lien notes.
On the secondary market, the Spanish biopharmaceutical company Grifols was once again on the spot, as it was hit by volatility in bonds and stock despite an upbeat message on its earnings call – in January, a short-seller report criticising Grifols’ accounting and corporate governance triggered a selloff in its debt stack.
Sensor maker ams saw its debt plunge, as shown below, driven by the decision to cancel its microLED strategy, a cornerstone of the group’s roadmap. The group had been investing in a cutting edge production facility related to the new technology, which is used in smartwatches. Ams said that a major customer had pulled out, without naming the customer, but it comes as Apple decided to delay the new Apple Watch Ultra. Here’s 9fin’s update on the company.
