Market Wrap

LevFin Wrap - Down [to] the wires

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Kat Hidalgo's avatar
  1. Huw Simpson
  2. +Kat Hidalgo
10 min read

High Yield Primary

Just as we began to think it was all over for 2021, sentiment improved on emerging news around lower mortality rates for the new variant, and the bond portion of T-Mobile Netherlands’ LBO swiftly snuck in. This however, does now probably signal the close of High Yield until the new year.

T-Mobile Netherlands

Funding the second leg of Apax and Warburg Pincus’ buyout, leads for T-Mobile Netherlands hit send on €800m Senior Secured Notes due 2028 (B1/B), and €550m Senior Notes due 2029 (Caa1/CCC+) on Tuesday. The deal was unusual for syndicating the bond and loan financing separately, which limited buysider’s ability to play off relative value in the capital structure. 

As the week's sole deal, it had a fairly easy run at the market despite recent wobbles, and closed over just three days. This was partly helped by the strong demand already seen for November’s TLB – upsizing from €2,000m to €2,400m – which helped de-risk the bond transaction.

Legals on the deal attracted significant attention. There were numerous sponsor-favourable terms, including portability available from day one, multiple uncapped baskets, and uncapped EBITDA add backs (incl revenue synergies) subject to a 36-month time limit. Also, uncapped Restricted Payments and Permitted Investments can be made from “Permitted Funding” sources without meeting any leverage/other ratio test or being subject to an EoD blocker. Clients can read our Legal QuickTake here, in full. 

Total consideration for the group is €4,840m, or 7.1x LTM EBITDA of €681.5m (€4,693.8m, 6.9x excl. fees), and leverage is 4.7x through the secureds, and 5.5x total. Given the relatively slim equity cushion, there was a slightly larger pick-up on the sub notes, with IPTs sent out at 3.875% area and 5.50-5.75%. Final pricing landed at the tight end of each, offering 3.75% and 5.50% at par – a 175 bps spread.

It’s also interesting to see the SSNs price inside November’s E+400 bps TLB. This has been a feature of recent deals, as you can see below. 

The other update in primary came from Norwegian debt purchase and collector B2Holdings, who almost three weeks after mandating DNB, Nordea and Pareto to arrange investor calls, pulled a proposed €300m Senior Notes offering on Friday, citing market conditions.

And finally, across the pond we saw Softbank launch a $550m 5.00% Senior Notes secondary offering of WeWork bonds at a bargain basement price of 85.63, to yield 9.875% at initial price thoughts (final price 85.99). The bonds were part of a $9.5bn rescue package which included equity purchases from existing investors, a letter of credit facility, as well as a personal bailout for controversial founder Adam Neumann, and came with $0.01 warrants attached. Although the bonds carry a 5% coupon, WeWork said in public disclosures that the attached warrants raised the effective interest rate when SoftBank signed the deal to 11.69%.

Clients can read our coverage of the transaction here, and our Credit QuickTake here. If you are not a client but would like a copy of the Credit QuickTake, you can request a copy here.

High Yield Secondary

Secondary traded up for a second week in a row, gaining a further +0.30 pts on average (last week +0.17 pts), although instruments are still on average -0.43 pts down versus prior month. All industries traded up, with Energy (+0.47 pts) leading the charge, followed by Consumer Discretionary (+0.38 pts) and Industrials (+0.36 pts). Real Estate (+0.17 pts), Healthcare (+0.16 pts) and IT (+0.10 pts) all marked smaller gains.

In single name moves, pandemic affected names performed better, with CarnivalLufthansa, and Getlink all gaining over a point across their debt stacks. Meanwhile, flag carrier TAP Air Portugal – which expected the EC to approve its €3.2bn restructuring plan by Christmas – saw its 2024s up +2.2 pts into the low 80s.

Elsewhere, Lycra SSNs due 2025 traded down -2.7 pts this week. On the Q3 earnings call (03 December), the group warned that they expected a weak Q4, facing the perfect storm of higher input prices, lower volumes due to seasonality, and production shut-downs. The call wrapped up in just 15 minutes, without any Q&A.

The iTraxx European Crossover tightened noticeably, moving in around 20 bps from last week to 262 bps this morning. In fund flows, Bank of America Global Research now report outflows at their worst in 57 weeks. Over the last week Global HY has lost -$222m, Euro HY -$648m, and US HY -$1,020m. Over the past two weeks (the worst back-to-back outflow episode since March 2020) HY funds have lost 1.2% of AUM.

Leveraged Loans Primary

It’s the most wonderful time of the year and the sentiment has spread to the leveraged loans market. Buysiders have put recent investor favourable pricing conditions down to a thick supply of deals. As the first buysider said: “It’s been a big year, and people are just being a bit more selective. This is reflected in pricing.”

But the selectiveness has leaked into the late hours of 2021, despite a much thinner stream of deals: Just €1.370bn is currently in the market to be allocated.

One example of a widening margin here is Inovie, which priced this week at the wide of guidance at E+400bps, albeit with an OID on the tighter end of the 99-99.25 guidance. For a stable sector such as labs testing, wide pricing is a particular shock, though a second buysider had issues with the credit.

They said: “It is an opportunistic and aggressive transaction, and it’s basically taking 50% of the equity out at a time when the Covid benefit is expected to decline. They are mitigating that by readjusting the EBITDA by 10% at least.”

The second buysider was also concerned about the potential for regulatory change, while a third buysider said they expected a stronger decline in demand for Covid-19 testing in France, home to the bulk of Inovie’s business, due to a push for vaccinations. 

The TLB is a fungible add-on to Inovie’s existing €772m tranche issued in December 2020 at E+375 bps, so the docs have not changed dramatically, save for the inclusion of a change of control provision that has prompted some buysiders to assume the business may be sold by sponsors Ardian, GIC, Mubadala and APG soon. 

The absence of ticking fees did not annoy buysiders as it usually would, due to the rapid expected closing of the transaction, which the third buysider said would happen on 15 December 2021.

Oh-micron, Omicron? Let’s call the whole thing off

While Omicron has pushed some deals into the dark (CD&R’s debt financing for the acquisition of Morrisons, for example, has been delayed until 2022), the full effects have been muted in the eyes of most buysiders. A fourth buysider said that loans were already being pushed back, “but the sense is that people were waiting to wrap up anyway.” The first buysider agreed that they didn’t expect Omicron to be a particular issue in the new year and that they weren't sure if it was too much of an issue even now.

But this hasn’t stopped a certain flight to “quality” in the light of macro concerns and volatility. The buysider added: “Those deals that feel safe, without the noise of supply chain issues and inflationary pressure, tend to go quick.”

One such company is Anticimex, which operates in the essential pest control industry. The Swedish business is offering a non-fungible TLB that has been upsized from $350m to $375m. Final terms set at the tight end of L+400-425 bps guidance, while the OID was tightened to 99.5 from 99.0.

Another example, Circet, priced a €200m fungible add-on at the tighter end of its OID guidance to fund acquisitions at 99.75. The tranche was also upsized from €150m. The telco maintenance provider, which has solid roots in its home French market and a strong business in the UK, issued a €1.625bn term loan in June 2021 at E+375 bps with a 99.75 OID. See our loan preview for that tranche here

​​Cirect’s acquisition strategy has been a pillar of growth for it. Acquiring 10 businesses since Advent bought Circet in 2018 for €1bn, revenue has grown from €750m in 2018 to €2.1bn in 2020, pro forma for acquisitions. Furthermore, Moody’s expects revenue to have grown by around 30% in 2021, helped along by acquisitions, and another 10% in growth in 2022.

Bohemian Rh-add-sody

That’s not the only add-on in the market. Indeed, one might say it’s add-on week in leveraged loan land, a trend the first buysider said was typical of December. “Issuers are pricing attractively in terms of OID, but it depends on the credit,” they said. “A lot of these add-ons come with smaller acquisitions so you have to do the work on these. Does the acquisition deviate from the original strategy? Does it add risk?”

ADCO, an environmental services company, was a bit more relaxed on the OID for its €95m add-on than Circet, offering a cool 99.5, up from original guidance of 99.25. The original €565m TLB issued in March this year, also pays E+375 bps but was issued at par. Commitments are now 10 December. 

In the market with the week’s smallest add-on is PAI-backed Compleat Food Group. The £45m add-on, which is touted to have a margin with a six-handle, will support the acquisition of food producer Wrights Food Group.

On the struggling side of credits in the market, OGF is seeking to push the maturity on its 2023 TLB out 2.5 years to 2025 in exchange for a 100 bps margin uplift to E+475 bps, according to two sources familiar with and one source close to the situation. 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. 

Buysiders were unimpressed by the business losing market share and by the A&E structure of the deal, in lieu of a new, potentially more attractive offering. Clients can see our loan preview here

Leveraged Loans Secondary

The dam broke on Beaver-Visitec this week, as the ophthalmic devices manufacturer’s €450m TLB dropped by almost three points. The week’s biggest secondary loser, the tranche pays E+425 bps and is currently indicated at 93.6. 

The company’s first lien debt was downgraded by Moody’s on 6 December to Caa1, because of high leverage in light of weak earnings put down to the pandemic. The agency also predicts the business will not use more than 35% of its €65m RCF to avoid testing its springing covenant, thus potentially affecting liquidity.

Hunkemoller, the Dutch lingerie brand that has bounced around the secondary market in the last few months, placed as the third greatest faller. Its €280m tranche fell by one point and is currently indicated at 89.3.

Risers were less dramatic, with gold medallist Holland and Barrett’s tranche increasing by just 1.1 pts. The health products retailer’s £450m tranche paying L+525 bps is now indicated at 93.7.

But on the whole, four buysiders said there wasn’t too much value to be found in secondary, hence the calmness of the secondary market overall. 

The fourth buysider mentioned Paysafe and Cerelia, the pancake ingredients producer, as particular names they had been watching, but with chagrin rather than joy.

Paysafe, in particular, recently suffered blows from the German and Dutch governments by way of decimations to the gambling limit in their jurisdictions. This is likely to lead to hefty decreases in revenue for its lucrative digital wallet segment, which is often used for gambling sites. The fourth buysider was confident in the company’s future, but said positive changes might not take effect until, at the earliest, 2022 or 2023. Since its issuance, in September 2021, the €275m TLB paying E+300 bps has dropped to 96.5.  


LevFin Wrap is published weekly for subscribers and includes our Forward Pipeline. If you would like a sample of our Forward Pipeline or Deal Predictions, please fill in your details here.

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