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Market Wrap

LevFin Loans Wrap - All I want for 2022 is a loan deal

Michal Skypala's avatar
  1. Michal Skypala
•3 min read

It’s become the most wonderful time of the year for a market break, as people across continental Europe are busy trying to not bring the Omicron variant to their holiday dinner. Adding to this, on the back of inflation concerns a surprise pre-Christmas present came as the Bank of England raised rates to 0.25%. There’s little surprise that no one is braving the pre-holiday loan market, especially after big expected LBOs have already moved to 2022. 

“We don’t know if the market will open right in the first weeks of January. We just need to have first big deal pricing for everyone to see that the water is all fine,” said one portfolio manager. “Morrisons could be a good test coming from hopefully strong holiday trading numbers.”

January should come, as it usually does, with fresh capital to invest, refreshed risk appetite, and deeper liquidity — which should set the tone for a strong year ahead. Looking ahead to 2022, CLOs are poised to repeat another strong year as 9fin outlook predicts. If loan investors stay disciplined and the promise of PE dry powder fuels new LBOs, arbitrage should continue to be a slam dunk for managers and drive new CLO issuance to comparable levels in 2020. Equity returns should be favourable since managers have already gained new flexibility in their structures, and now can also participate in restructurings (if they return, expectations on defaults remain low for 2022) while their own investors base is getting savier on ESG credentials. Read more in 9fin’s CLO sector forecast for 2022 here

The sole loan deal pricing this week was a slim ÂŁ45m add-on from UK chilled foods producer Compleat Food Group. The fungible add-on to the ÂŁ255m TLB priced in line with talk at S+ 600bps and 99 OID, while the proceeds will be used for an acquisition of a UK peer and to repay RCF drawings. Jefferies and Rabobank were joint bookrunners on the deal. 

Therefore, the only active syndication left in the pipeline is French funeral provider OGF. Early birds were due this Monday on an offer to existing lenders to extend the maturity on its 2023 TLB out 2.5 years to 2025, in exchange for a 100 bps margin uplift to E+475 bps. The funeral provider’s loan size will be cut from €940m to €816m, with a €125m PIK marketed to investors to pay just over 10%, raised at the same time as the senior debt to plug the gap. Terms are expected to close before Christmas.

Loan Secondary

UK headquartered Cineworld made headlines this week as it lost a lawsuit with Cineplex in Canadian courts this week. Cineplex sued the second largest cinema operator in the world for breach of contract when it walked away from a merger in May 2020. A Canadian court ruled that Cineworld now needs to pay a hefty $930m in damages. The company has plans to appeal, which might take another year, so it doesn’t expect to pay the damages soon.

However, its loans did not stay unaffected and have tanked over five-points to mid 70s, back where they were in the middle of January. So clearly the market is taking a view that the fine could be in excess of what the company is able to pay ($650m of liquidity at H1). For those who believe Cineworld can become a winner out of this it is a tempting entry point. 

“We are watching the space, but not eager to jump in. Some banks trading desks are saying they have enough cash to be fine but I am not sure,” said a second portfolio manager. 

The biggest riser was troubled US telecom company GTT Communications that gained 2.4 points on its €750m TLB to 86.9 on the news that a Bankruptcy Court for the Southern District of New York has approved the company’s prepackaged restructuring plan. Germanair technology system provider Flakt Group followed as it reversed its losses from last week and gained 1.25 points to 94.4.

Overall the secondary market stayed uneventfully flat with no industry sectors moving more than 0.1 points. The biggest decline was seen in Consumer Staples, while only Utilities and IT sectors rose this week.

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