Amongst the spate of stressed refinancings in late 2020 and the first half of 2021, Kloeckner Pentaplast’s (KP) complete cap structure refinancing in early February 2021 was arguably one of the most opportunistic. Fuelled by a short-lived spike in earnings delivered by the pandemic in 2020, the company was able to take out a HoldCo PIK bond viewed by Moody’s as a form of dividend payment to sponsor SVP.

It is clear that the refinancing left KP over-levered once earnings normalised, with the 6.4x structuring leverage figure telling a credit story far removed from reality.

That reality quickly landed for the company’s €300m 6.5% 2026 SUNs, as in a strong market they traded below par within 10 days of becoming free to trade. They now are at the bottom of the pile of European packaging bonds sitting only above recently restructured Frigoglass and Schoeller Allibert whose sponsor’s recent attempt to support a refinancing didn’t have the desired effect for its €250m 2024 SUNs.

KP’s September 2026 SUNs do not currently look refinanceable, reflected in their trading price of 58.7-mid (~22.8% STM). Leverage is too high and though FY 23 should see some earnings improvement and the potential for some leverage reduction, there is similarly a refinancing risk for secured lenders whose debt comes due in early 2026 (Feb and March). Creditors are clearly considering this elevated risk, with several questions put to management during the Q3 22 earnings call in November relating to the outlook for FY 23 earnings.

Matters are complicated by KP’s history and the ownership of SVP, as well as the relative size of the SUNs - making up just 14% of the group’s term debt. This means junior bondholders are not guaranteed a seat at the table if things go south and may need to be prepared to be proactive in coming up with their own proposal or solution that keeps them in the game.

To access the full analysis by 9fin's Emmet Mc Nally, which delves into the necessity of the refinancing, predictions for potential changes this year, and the reasons behind the equity upside resulting from market pricing, please click here to request the full deep dive.