Market Wrap

LevFin Wrap - COPacabana, the hottest spot north of Lancaster

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Michal Skypala's avatar
  1. Huw Simpson
  2. +Michal Skypala
10 min read

High Yield Primary

This week finally saw the launch of COP26, as countries across the globe committed to new net-zero targets, the phase out of coal, and an end to deforestation. Sounding a lot like Renton’s speech from Trainspotting, UN Secretary-General Antonio Guterres said “Choose ambition. Choose solidarity. Choose to safeguard our future and save humanity”. Activist Greta Thunberg meanwhile was less impressed, calling the conference the “Great North greenwash festival”. But wherever your sympathies lie, ESG linked issuance flooded into High Yield, with five companies printing new sustainability linked debt - while room was left for a pair of taps, a storied builders-supplier offering, and another toppy dividend-recap.

Liberté, Égalité - Écologiste?

New SLB issuance announced this week was dominated by French names, and first up was Kem One, a Chlorovinyls producer based in Lyon. After Inovyn, the group is the second largest PVC- and fifth largest caustic soda-producer in Europe, and maintains a small presence internationally. Part of Arkema until 2012, the company was spun off as a standalone entity and immediately suffered from underinvestment, misaligned strategy and poor industry dynamics - filing for bankruptcy in 2013. The business emerged in 2014 under the leadership of new owner Alain de Krassny and is now being sold to Apollo for €704m. Some €450m Senior Secured Notes due 2028 (B2/B/B) are being offered as part of the LBO, and the final 5.625% coupon failed to move far from IPTs in the mid-to-high 5s. 

SPTs attached to the notes aim for a 22% reduction in Scope 1 and 2 emissions by 2025 vs a 2019 baseline, and a 1.6% p.a. reduction up to December 2024 in relation to its call feature. A 25 bps sustainability-linked interest rate step-up will apply from November 2026, while the optional redemption call schedule will step up 25 bps from 2023 if the 1.6% p.a. target is not met. This is close to the current ‘market standard’, and contrasts with the structure used by Italian waste management group Itelyum (who priced a €30m tap this week). Itelyum debuted a novel concept back in September, whereby the step-up applied only to the redemption premia, not the coupon. You can read our take in full, in Alice Holian’s “Dude, Where’s My Coupon Step-Up?” piece.

Part funding the acquisition of Hella by Faurecia, a further €1,000m in sustainability-linked Senior Notes due 2027 (Ba2/BB/BB+) launched on Tuesday. The group arranged €5.5bn of committed facilities for the Hella purchase, and the enlarged bond will reduce the €4.2bn bridge-to-debt facility to €3bn, with a €500m three year term loan and €800m bridge-to-equity making up the remaining package. Although this deal also failed to tighten meaningfully on IPTs - and landed on price talk of 2.75% area - it did upsize by €200m in the bookbuild, as leads perhaps chose to de-risk a portion of the remaining financing rather than optimise interest costs. 

Hella will contribute to Faurecia’s Electronics and Software division, and add new lighting and aftermarket segments. The combined group will have sales of €22.5bn and employ more than 150,000 people. Regulatory approval is expected in Q1 2022.

Other French names marketing SLBs included Rexel, the wholesale distributor of electrical products refinancing existing debt with €600m 2.125% Senior Notes due 2028 (Ba3/BB-), and glass packaging company Verallia, who priced a long-dated €500m in Senior Notes due 2031 (Ba2/BB+) for 1.875%. Israel-based Teva pharmaceuticals’ $4,000m four-tranche offering managed some tightening and a $1,000m upsize after a California Judge found the company did not cause a public nuisance, or make false and misleading statements about opioids. Tranches on the SUNs settled at €1,100m 5.5Y 3.75%€1,500m 8.5Y 4.375%$1,000m 5Y 4.75% and $1,000m 7.5Y 5.125%. ESG considerations however remain key for the industry, and clients can read our full QuickTake on the company here.

If you are not a client but would like a copy of the ESG QuickTake, please fill in your details here.


Elsewhere, laboratory service provider BioGroup LCD priced a €350m tap of its existing 3.375% Senior Secured Notes due 2028 (B2/B+). The deal was set out with IPTs of 98.0-98.5, offering a slight premium to the existing notes (seen at around 99.6 pts, before dropping to ~98.9 pts post announcement), but managed to tighten to 98.5001 - which allowed the tranche to become fully fungible. Proceeds from the notes will fund the acquisition of Medilys and a portion of Belgigue, with the remainder to repay drawn amounts under the RCF.

UK building materials group SIG plc marketed a HY debut, offering €300m Senior Secured Notes due 2026 (B1/B+) to refinance existing private placement notes and amounts outstanding under the term loan facility. The group cites a detrimental period of ‘self-harm’ in 2019, where previous management implemented aggressive pricing policies, centralization and headcount reductions - all of which led to a loss in profitability and market share. A turnaround by current management was launched in May 2020, and appears to be working - L2QA EBITDA was €98.4m, implying net leverage of just 3.1x (versus 4.2x on LTM EBITDA of €73.5m). The notes priced at 5.25% (par), moving steadily inside IPTs of mid 5s and price talk in the 5.375% area.

Saving the best to last, Apollo’s second transaction in the market came via Lottomatica, the Italian gaming group and successor to Gamenet. Apollo acquired Lottomatica in May 2021 for €956m, and intends to formally merge the entity with Gamenet and Goldbet. Issuing €400m Senior Secured PIK Toggle Notes due 2026 (Caa1/CCC+), the proceeds will pay a €375m dividend (adding 0.9x of ‘Pro Forma Run-Rate EBITDA’) to the Sponsor. Pricing on Friday the notes will pay an impressive 8.125% / 8.875%, or nearly 350 bps over the pre-deal 4.7% Ytw of Gamenet’s SSNs due 2025. You can read more about the transaction in the Friday Workout.

If we look closer at Triple CCC Euro or Sterling deals printed in the past six years, issuance is unsurprisingly correlated with lower spreads. Just over a third of the way into Q4 we’ve already seen five Triple CCC recap deals in 2021, and it seems very possible we’ll top 2017s record of six in the coming weeks.

High Yield Secondary

Secondary made broad positive gains this week, trading up an average of +0.20 pts as background conditions proved supportive (70% +0.37 pts | 25% -0.24 pts). More dovish tones from the Fed and ECB, plus the failure of the BoE to raise rates (or even trim purchases under its QE programme) helped the iTraxx crossover push below 250, seen today at 248 bps. Earnings this week also looked strong, with an average YoY top-line gain of +6.4%, and EBITDA of +4.5%.

Across industries, Real Estate (+0.44 pts) made the greatest positive move on the back of further retracing at Adler Group, followed by Consumer Staples (+0.28 pts) and IT (+0.28 pts). The only negative move was in Healthcare, which traded off -0.08 pts - mostly due to a -0.5 pts to -3.0 pts slide across the Valeant debt stack. The Pharmaceutical company announced Q3 results detailing a -1.3% drop in sales and -6.6% drop in EBITDA - although this was in part due to divestitures.

In European domiciled HY credit fund flows, European focused funds suffered another outflow (-$96m), while Global (+$327m) and US (+$187m) funds saw inflows.

Leveraged Loan Primary

European loan primary held a steady pace printing over €3bn equivalent of paper this week. As spreads remain at elevated levels for 2021, syndicates are not struggling to place deals with mid 400-handles and mostly are managing to tighten some from initial talk. 

The only deal that struggled to get through on the launch spread was Norway-based satellite group Marlink. Pricing on both the $525m TLB and a €250m TLB finalized at 475bp over Libor/Euribor, the wide-end of 450bp-475bp guidance with a significant move on OID to 97 cents on the dollar from initial talk of 99.

Most of the cold shoulder on the deal came from overseas as the US-dollar portion of the offering was struggling to find traction. “It struggled in the US given that [the industry] recently had a few Chapter 11s, so investors there were much more weary,” says one buysider who participated in the syndication. 

“It's not a straightforward one, as they don't own infrastructure, so there is always risk of disintermediation. An unknown is whether LEO constellation operators once operational (e.g. Starlink) will go direct and try to capture the niche maritime market,”  they add.

Other loans were smoother sailing with the rest of the prints keeping or tightening the initial talk. 

The slim size of the €360m refi helped debutant Netherlands-based generic pharma firm Synthon close syndication at E+450 bps and 99.5 OID, moving from 99.0 OID at launch, following strong investor demand. 

In the 9fin preview, a few buysiders lacked certainty about patents and future volumes and an intensely competitive market, as well as “atrocious” docs, seen as symptomatic of something malign. Others also confessed to having been burnt by sponsor BC Partners in the past, the majority owners since 2019, although they described the management (including the founder, who has retained a stake in the business) positively. Nevertheless, benign signs in the business, including long-standing customer relationships with hefty renewal rates and talk of a strong pipeline of coming drugs eventually prevailed for a positive outcome.

Major disposal despise 

Innovation that XSYS’ €435m first lien term loan B slipped into its documentation became the talk of the week. At the end Investors had stood their ground and asked the German printing business to bin the bespoke “major disposal clause”.

A chief point of contention revolved around the doc’s change of control provisions or, more specifically in this case, the weakening of the provision. XSYS tried to bring a novel twist to this structure, where a sale of between 50% and 95% of the business would be defined only as a major disposal and therefore the issuer only would have an obligation to pay out lenders up to the amount of proceeds the company is getting out of the sale. 

The ticking fee was also tightened to: 0-45 days 0%, 45-90 days 50% and 90+ days at 100%. Concessions on the documentation helped the repackaged deal to price at E+425 bps and 99.75 OID from initial guidance of E+425-450 bps and 99.5 OID. 

9fin’s loan team has previewed buyside sentiment on the controversial documentation and legal team has analysed the terms in detail, their report is available to subscribers who can validate that they have access to the facilities agreement. If you are not a client but would like to see the preview, please fill in your details here.

Even against a small deal size and an uncrowded primary, pushback was also successful because not everyone has seen XSYS as a prime credit. Even though bringing hefty sale margins, buysiders still had some unhappy memories of parent company Flint Group, with high leverage, concentration of its packaging industry customers and a business relying on one sole factory for production.

Positive sentiment accompanied the other pricings. The market approved of German pharma group Pharmazell’s acquisition of Novasep, pricing its loan with a 99.25 OID, versus the previous range of 98.75-99 and up from 98.5 at launch. French food producer Solina tightened to 99.75 OID, from 99.5 at launch on its €100m add-on, with Finnish fibre manufacturer Ahlstrom-Munksjö printing at tight end of talk at E+375 bps margin and 99.5. 

And lastly, the familiar UK chemical name Ineos tweaked its debt stack from bonds to loans as it priced $845m tranche at L+250 bps with a 99.875 OID, tightened from 275bp over Libor and a 99.5 OID. The €350m loan tranche priced unchanged at 275bp over Euribor but with a 99.75 OID, tightened from 99.5 at launch.

Three new deals were added to loan primary this week. Investors can take a sizable bite from the hefty €2bn LBO of Dutch telecommunications provider T-Mobile Netherlands, which is being acquired by Apax and Warburg Pincus. And ESG credentials might get scrutinised in UK’s defense business Ultra Electronics, being acquired by peer Cobham. Finally, US rubber manufacturer Kraton is also tapping the market to finance its take-over by Korean peer DL Chemical. 

Loan Secondary

The loans market stayed even more uneventful than last week, moving far less than than 0.2pts. Industrials were the only sector that picked up slightly, gaining +0.12pts. 

Nevertheless, some secondary activity is picking up as after a couple weeks’ hiatus a new BWIC has entered the market. Bids are due on 1pm Tuesday (9 November) for a €230m portfolio of loans comprising 52 names. Up for grabs are some recent pricings as IVC, companies that are actively tapping the market at the moment, such as Cobham, and tainted names likeAmer Sports,B&B Hotels or GTT Communications


9fin subscribers get access to 9fin's Forward Pipeline, our analysis of deals coming to market. If you would like a sample of our Forward Pipeline, please complete your details here.


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