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European LevFin Wrap — Tapping brakes on primary during half term break
Ryan Daniel
•6 min read
Compared to primary’s 2024 pace so far, new deal announcements have slowed a little this week, with no new high yield issues in euros. Maybe competing priorities had something to do with it.
Some will have welcomed the opportunity to pile pancakes onto their plates instead of dealing with their usual stack of deals — especially those of a repricing flavour recently.
A buysider said: “It’s been pretty crazy — I’m really hoping it continues to slows down. There’s only so many deals you can keep doing this for.”
“There’s not an infinite number of credits that warrant a 50-75bps reduction,” they added.
Broader markets have still had a fair bit to chew through this week, considering the release of the hotter than expected US CPI print: the year-on-year value at 3.1% (vs 2.9% expected). Core CPI, which excludes food and energy prices, rose 0.4% month-on-month (vs 0.3% expected), its highest value since last May.
Despite a wobble for markets earlier in the week (S&P 500 had its worst CPI day performance since September 2022 on Tuesday), it hasn’t led to a significant shift in sentiment — perhaps just injecting a much-needed dose of reality for any overly optimistic doves.
An already unlikely March cut was taken out of play after the print, as the probability of a 25bps Fed cut fell from 18% to 11%. A full 25bps cut is now only just priced in by the June meeting.
As per Deutsche Bank Macro Strategy, the market took out 24.6bps of expected cuts in 2024, with 87bps priced in by the December meeting, down from a peak of 168bps on January 12.
Investors still remain hungry for new money issuance, and they’re hoping for M&A/LBO activity to really pick up in the second half. The early signs at least seem to be there.
“There’s been an uptick in stuff coming through committees but still, don’t expect a flood. Seeing a few successful IPOs will help,” said a sponsor.
“It won’t be like 2021 but that doesn’t mean it can’t look like 2018,” they added.
High yield
The market’s buoyancy in spite of hawkish data can be summed up through this week’s flow data from Barclays Credit Strategy.
The seven-day period from Thursday to Wednesday (8-14 February) saw strong inflows (78th percentile) into EHY funds — driven by mutual funds, though ETFs saw modest inflows.
According to a recent paper from JP Morgan Asset Management, technicals should continue to provide a tailwind for the EHY market, skewed towards stronger flows and not just reduced supply.
“We do not anticipate the same volume of rising stars [as 2023], but given our expectations for a long-awaited resumption of inflows, this hardly seems to matter.”
They also argue that the bigger threat to most borrowers’ debt service ratios is the trajectory of forward earnings rather than interest costs, but the overall credit quality of the market and the lack of a typical pro-cyclical leveraging cycle should support credit quality through any earnings downturn.
Speaking of which, as earnings season is now up and running, you can find our breakdown for EHY issuers within our Earnings Digest. In this week’s edition we cover Novelis, Delivery Hero, Telecom Italia, and OCI.
Third quarter earnings are past the go-stale period, so the resumption of primary supply in 144A format can only come from issuers which have already published FY 23 figures — watch this space.
Leveraged loans
Across the pond, Getty Images pulled its $1.38bn loan refinancing, which included a $400m-equivalent euro tranche, saying the potential interest savings from the deal were “below expectations.”
It follows concerns from investors as the threat from generative AI looms large, which can cheaply and quickly produce images on demand.
“I don’t think it’s urgent,” said a second buysider. “It will be interesting to see what they choose to do next. Do they admit that this needs more economics?”
Eleda’s SEK8.5bn-equivalent 2031 TLB to back Bain Capital's takeover — the first full-scale new money LBO to come to market in Europe after Synlab AG last year — is also keeping loan investors busy.
As the deal progresses, we’re hearing positives on its credit story alongside grumbles from buysiders over its docs.
Keep an eye out for our loan preview dropping soon.
UK-based private education group Inspired Educationpriced its €1.095bn TLB at E+400bps and 99.75 (including a rare €300m slice of new money), tightening from IPTs of E+400bps and 99.5.
A third buysider said: “We like it a lot — recurring revenues with high visibility, steady fee increases, sticky product,” said one investor. “It’s an easy one.”
Indicative of the scramble for new money, investors weren’t optimistic about allocations in addition to what they’re were already rolling.
“It’s been pretty dire on all our recent deals,” said a fourth buysider. “Any refinancing or repricing, we’re looking for a new money portion, but we’ve been getting very skinny allocations.”
Integrated payments provider Planet is marketing a €910m TLB to refinance outstanding debt, including, as with several recent deals, a private credit unitranche facility. Here’s our take on what private credit funds are doing to fend off BSL takeouts on other deals.
Despite concerns over leverage and a very competitive market, there was praise for the company’s supportive sponsors and attractive IPTs. OID is guided towards 97 with a 500bps-525bps margin.
A fifth buysider said: “500-525bps is compelling, you can’t deny that.”
UK-based data analytics firmKantar’s $750m 2029 TLB partial A&E (from 2026) priced at S+CSA+500bps and 99 amid rumours of a division sale, at the wide end of S+CSA+475-500bps talk.
A sixth buysider said, prior to pricing: “A lot of deals are upsizing at the moment and this one could too to address the whole loan. But this isn’t the quality of a Merlin or a Parts Europe — you can’t risk coming to market and having to widen pricing to get allocations full.”
French payment firm Ingenico has launched a €1.1bn 2030 TLB, aimed to refi debt and pay a dividend to sponsor Apollo.
French regulatory and compliance services firm Socotecpriced a €150m TLB add-on at E+350bps and 99.25 from price talk of E+350bps and 99-99.5.
Sticking with the French theme, food ingredient maker Solina has launched a $420m 2029 TLB deal which will be used to refinance existing debt and fund acquisitions such as Oscar and Puljonki from the Nestlé Group.
Last but certainly not least, margarine mammoth Upfieldannounced that it is launching dual-tranche 2028 TLB add-ons, split across €150m and $250m. Price talk is guiding towards E+500bps and S+475bps for the dollars. OID is aiming at 98.5 for both legs.
