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Huw Simpson

Kat Hidalgo

For the first week since Christmas there’s been no primary activity in European High Yield. So instead we turn to August earnings, and some action in Secondary.

Third quarter earnings continue to flow through, and the usual 60-day reporting limit suggests we’ll keep busy for the remainder of august.

For companies who’ve reported Q2 figures to date, the average sales growth appears to be ~19%, with the greatest bounceback from those industries most affected last year. Consumer staples were held back by Casino and Rallye, while Nomad Foods struggled versus prior year numbers which were juiced by peak covid demand. On the other side, for Consumer Discretionary, names like TUI, Aston and Matalan all compare very favourably to the prior year.

Trading down marginally, instruments this week lost an average of just -0.06 pts (35% +0.20 pts | 60% -0.22 pts). Real Estate (+0.11 pts) and Financials (+0.03 pts) were the only positive industry moves, while Energy (-0.21 pts) and Healthcare (-0.22 pts) lost some ground.

In other metrics, the iTraxx European crossover further tightened ~3 bps on the week to 230 bps. In European domiciled HY credit fund flows, Global HY (+$404m), Euro HY (+$227m) and US focused funds (+$85m) increased last week's inflows across the board.

As reported, Corestate’sQ2 earnings on Wednesday saw the 2023 SUNs trade up ~2.5 pts, bringing yields back to their lowest since pre-pandemic (investors have been on a wild ride, but the notes are currently ~7.2% Ytw). Management outlined a second quarter rebound in real estate debt, and claims a strong €1.6bn sourcing pipeline for the real estate equity segment. The new CFO, Udo Giegerich, stated in the earnings call that a 3x leverage target will be hit by year-end, helped by the sale of the Giessen shopping center.

Elsewhere, Telepizza (now Food Delivery Brands) also traded well on Q2 results, with its 2026 SSNs up a further +1.6 pts to ~95 pts this week. Last month, news emerged that the group was fined €150,000 for lying about the resignation of Marcos de Quinto, a “serious offense” according to CNMV. The director had apparently resigned for ‘personal reasons’. It emerged however, De Quinto was at odds with management, and disagreed on a distribution agreement with main rival Pizza Hut, something the regulator considers abuse of inside information.

In Spanish real estate, Haya continued retracing toward it’s post-pandemic high of ~90 pts in February of this year. The 2022 SSNs were seen today at around 86 pts, up around +1.3 pts on the week. As we reported in July, H1 results showed an improvement in working capital management, which boosted FCF and allowed the group to repay the RCF. Management hints at opportunistic buy-backs could also explain some of the positive movement. New green issues from the better rated Neinor and AEDAS Homes have traded well, with the respective €300m SSNs and €325m SSNs trading around 102.9 and 103.7 pts. The outright winner, Via Célere has seen its green €300m SSNs rise to 104.9 pts.

Heathrow has long been a critic of the UK government's response to re-opening. While passenger numbers are up with the easing travel restrictions (Heathrow July figures are +74% on last year), numbers at the UK’s largest airport are still around 80% below pre-pandemic levels. Both airports, Heathrow and Gatwick, are demanding reductions to testing, rightly arguing the costs are prohibitive to many travellers.

Gatwick reported H1 earnings today, showing a -71% fall in sales YoY, and EBITDA dropping to -£50.3m, as despite cost cutting measures, low traffic levels hit the top line. Covenant waivers were in place for the 30-June 2021 calculation date, however the group has now commenced a consent solicitation to avoid future forecasted breaches.

For airlines, most companies we track were slightly down on the week. Swedish firm SAS Group and TAP Air Portugal have fared worse, with both SUNs quoted in the low 80s. S&P affirmed TAP Air’s B- credit watch negative, pending clarity on state aid approval. As expected, liquidity has been eroded by delays to air traffic recovery, and the agency considers the airline's capital structure ‘unsustainable’ on a standalone basis. The group has flown through a €1.2bn state loan provided in June 2020, and in May the Portuguese government injected €462m of equity. A new €3.2bn state aid package would be used to finance its restructuring plan, including a conversion of the €1.2bn loan to equity, €1.5bn of new equity like financing, plus €512m in state guarantees for loans in 2022.

If primary has been as heavily populated as Tokyo this year, August has turned the market into a sleepy English village. Just three issuers are hopeful for leverage success: Masmovil, UDG Healthcare and Veritas, with less than €3.4bn-equivalent currently in syndication.

Indeed, August issuance has dropped steadily year on year, though admittedly, August 2021 does have some time to liven up before September.

Keeping analysts still at their desk awake and alert is information management software company Veritas, which on Monday launched a refinancing.

Veritas experience in the leveraged loan market is far removed from recently spurned deals such as Urbaser, which was pulled from the market, or Waterlogic, which had margins on both its tranches widened by 50 bps. Instead, Veritas has upsized its loans from $450m to $615m, though notably, healthy margins were already offered. The dollar portion was talked at L+500 bps with a 1% floor, while the euro portion was offered at E+475 bps with a 1% floor.

As Moody's reports, the group is refinancing the 2024 senior notes with the incremental term loan and cash on balance sheet, increasing secured debt in the capital structure.

The split currency $380m and €200m TLB offerings (fungible with a dual-currency loan issued in March) are both offered with a 99.25-99.5 OID.

More like Urbaser and Waterlogic than Veritas, UDG Healthcare took a little rest, pushing back commitment dates to August 6th from August 5th. Buysiders reported struggling with some of the documentation on the deal, including RP baskets.

The company rejigged its euro loans from €400m to €690m and its dollar loans to $1.6bn from €1.94bn-equivalent, while pricing was pushed to L+400-425 bps and a 99.5 OID for the dollar loan and up to E+400 bps at 99.5 OID for the euro loan.

In addition, an eight year £330m second-lien loan was pre-placed.

CD&R is acquiring the listed business for $3.83bn and plans to merge it with its portfolio company Huntsworth, which is in the same sector as UDG: healthcare communications and digital marketing. The combined business was marketed off a $455m pro forma EBITDA and the firm provided a 50% equity cheque for the purchase of the business and its combination with Huntsworth, according to a source close to the situation. Clients can log in to see our loan preview here.

Also taking its time to move through the market is Masmovil. Raising debt to fund the acquisition of Euskaltel, Masmovil has now delisted its Basque competitor from the Bolsa de Madrid for €3.5bn after buying 98% of the share capital of the company in its offer period.

A new €800m TLB and €250m RCF will help refinance a €2.75bn bridge taken out in July, with bonds expected to follow soon.

The business has moved quickly, already reshaping Euskaltel’s board and selling its television business to Agile Content for €32m. Masmovil is the fourth-largest telecommunications provider in Spain and is backed by KKR, Cinven and Providence.

All sectors were in the green this week, though “secondary month” as one buysider has called it, has not yet introduced any wide swings or sector moves yet, with only marginal moves revealing themselves.

Two companies shot for the heavens with greater than 2pts rises each. Predictably, Cineworld was the biggest mover on the back of earnings releases this week.

Pronovias, the bedraggled wedding dress retailer that’s been somewhat left at the altar, descended the furthest this week, albeit a marginal decline of 1pt against the previous week to 71. The €215m TLB paying E+450 bps was issued at 98 and is rated B1.

Its €607.7m TLB paying E+263 bps rose 2.6pts to 82, most likely on news that it may float Regal to reduce debt. After a horror year of Covid-19 closures, Fitch placed the cinema chain on negative watch in May 2021, citing a $255m claim from unhappy shareholders following Cineworld’s acquisition of Regal Entertainment Group that Fitch reported could lead to a Q3 liquidity crisis. The agency also noted uncertainties around the company’s liquidity, with Cineworld burning around $60m of cash per month during cinema closures, plus a dim picture on future attendance.

However, a $205m tax receipt has now reduced cash burn from $271m to $67m for the six months to June, with liquidity further buoyed by ~$400m of debt raised and ~$200m from the US CARES act. Positive working capital dynamics as a result of an April/May reopening of the estate also helped stop the rot. Management told investors on yesterday’s call that cash burn for June and July is encouraging at “nearly half” the $45m average.

Praesidad, a regular in the levfin wrap, is our second biggest riser, with a 2.3pt rise to 87.25 for its €290m 2024 TLB issued in 2017 and paying E+400 bps. In May, Fitch affirmed the company at CCC+ and withdrew its ratings for commercial reasons. The ratings agency stated that it expects the business to gradually recover after a cumulative 35% revenue drop in 2018-20. The future for the business continues to look rocky however, as Fitch noted the company’s limited ability to repay its revolving credit facility (RCF) that was drawn as a Covid-19 protection measure in 2020 and its high leverage (10x by 2023)  in the face of upcoming debt maturities in 2023 and 2024.

Buysiders may have found the Carlyle-backed business to be well-discounted given its position in the stable sector of security infrastructure, likely also to grow amid a global construction revival.

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