Market Wrap

LevFin Wrap - European primary volumes hit new record after huge week*

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Kat Hidalgo's avatar
  1. Ben Hoskin
  2. +Kat Hidalgo
11 min read

*Just kidding (happy April Fool’s day). Primary in European HY is still effectively closed.

While a couple of green shoots emerged this week in the form of two new deals from split-rated credits, only one priced, with the only being withdrawn from syndication after final terms were set.

To demonstrate just how much we’re scraping the barrel this week, we also saw a niche retail bond in the oil sector.


Italian real estate developer Immobiliare Grande Distribution (BB+/BBB-; S&P/F) looked set to issue €300m of green SUNs on Monday, before postponing the deal late in the day.

With no significant maturities due until Q423, the company said they will “re-engage with investors in due course when markets permit”. Leads couldn’t improve on the 4% yield sent out in IPTs, and size clearly mattered to the issuer — it was targeting a €350m deal, but this had been reduced to €300m by the time the company pulled the plug.

That brings us to a total of five officially pulled deals in 2022. Some are concerned that the failure of a highly rated issuer to get the size it wanted in a fashionable bond format might further dampen sentiment in high-yield primary.

Not this time

Next up came perennial issuer Cellnex (BB+/BBB-; S&P/F) with €1,000m of SUNs due 2026. The deal priced at 2.25% with an OID of 98.932, and proceeds will be used for general corporate purposes.

The liquidity raise comes as Cellnex is expanding internationally. The Spain-headquartered company is preparing a bid for the towers of Germany-based Deutsche Telekom, as well as closing the purchase of the Hutchinson towers in the UK.

The value of the Deutsche Telekom towers is estimated to be up to €17bn, according Cinco Dias, and Cellnex’s bid will face competition from American Tower. Deutsche Telekom will remain a minority shareholder, meaning Cellnex may only need around €7.3bn of financing, which is expected to be raised through additional debt, asset sales, and equity.

Elsewhere, UK-based oil producer EnQuest announced on Wednesday that it would issue retail bonds to take out £190m ($256.6m) of retail PIK toggle notes due 2023. The bonds will have a 5.5-year tenor and a 9% coupon, and the minimum subscription amount is £2,000 (in case any wrap readers are interested).

The PIK notes are the result of a 2016 restructuring, in which Enquest exchanged £155m of 5.5% retail debt for 7% extendable PIK toggle notes. The PIK notes were originally due in February 2022, but that was extended to October 2023 after the company failed to repay a senior credit facility due in October 2020.

During the restructuring, EnQuest also exchanged $650m of 7% SUNs due April 2023 for $982.4m (initial principal $677.5m) of 7% PIK toggle SUNs due 2022, which were later extended to October 2023. The company’s plan appears to be to refinance these notes in Q2 of next year.

High yield secondary

The ICE BofA Euro HY index tightened 15 bps this week to 423 bps, and instruments tracked by 9fin rose by an average of 0.48pts. All sectors turned green for the week as risk appetite crept back into markets. Leading the way was IT (+0.70pts), energy (+0.69pts) and healthcare (+0.67pts).

Fund flows for global HY echoed the positive sentiment, recording their first inflow in 11 weeks.

But Euro HY outflows continued, and the strong weekly performance couldn’t turn around a miserable March for European HY, with just two sectors in the green. Materials was the main underperformer, with multiple names exposed to the Russia/Ukraine conflict.

In single names, Inpost debt rallied on Monday after a Bloomberg report late Friday saying the Poland-based e-commerce logistics provider was attracting interest from private equity bidders. The €490m 2.25% SUNs due 2027 are up 2pts on the week, trading at ~92, according to ICE pricing.

CVC and Hellman and Freidman were reported to be among “several suitors” monitoring the Polish company, which sent the stock soaring on Monday despite the company (sort of) rubbishing the story. However, shares ended the week down ~14% after results released yesterday warned of margin compression and uncertainty caused by the Ukraine conflict.

At €5.7 a share, Inpost’s market cap is ~€2.85bn, a far cry from €7.3bn (implying an EV/EBITDA multiple of 25.8x) when the company launched its inaugural bond deal last summer. Based on FY 21 EBITDA of PLN1626.4 (~€350m), that EV multiple has more than halved to ~11.5x.

Are we there yet?

The long wait goes on for the launch of Morrisons’ buyout financing, with Immobiliare Grande Distribution’s failure to launch its green bond doing the sellside no favours. Morrisons and its peer Asda both reported earnings this week.

Full year numbers did little to move prices on Asda’s bonds, which were more or less unchanged — the secureds at a mid-5% yield and the unsecured in the mid-6% area. Full year adjusted EBITDA and free cash flow (excluding working capital changes) were down year-over-year, and capex rose 5% as online investments more than doubled.

As a reminder, cap rates on the Morrisons deal were set at 5.25% on the sterling SSNs, 5.75% on the unsecured euro tranche, and 6.5% on the sterling piece.

Leveraged Loans Primary

Like groundhogs on 2 February, buysiders have come out from their burrows to see how the primary land lies. With several add-ons coming to market such as Barentz and a privately placed €125m Ion Trading add-on, as well as several deals in early-bird phase this week, one could be forgiven for catching a glimpse of a buysider shadow, and expecting primary markets to open back up.

However, others are planning for another few weeks of hibernation. A first buysider said: “It’s not even the right market for IG cyclical names and we’re hearing about stable names pulling bonds.”

However, a second buysider estimates that there are €25bn in loans waiting to be syndicated, and banks are no doubt chomping at the bit to get deals off their balance sheets, though a third buysider suggested that nothing in earlybird now would land before Easter.

The second buysider is currently looking at two early bird deals and says it feels like the market is gathering “momentum.”

One such early bird deal could be Spain-based Cupa, a slate and building products producer being acquired by Brookfield. Aggressive doc terms are the MO for this US-based sponsor, which brought DexKo and Modulaire to market last year. Docs on those deals were called “worst in class” with Modulaire “even worse than DexKo,” respectively, by buysiders.

The company is said to be raising a €480m TLB with the help of Barclays, Morgan Stanley and Societe Generale, according to LPC.

Another one on the chopping block is Element Materials, bought by Singaporean SWF Temasek for $7bn. According to Loan Radar, the laboratory group, which specialises in materials testing, is out with a $1.5bn TLB and a $385m-equivalent euro denominated TLB. The package will also comprise $800m-1bn worth of pre-placed second lien loan, PIK and preferred paper. Bank of America and Goldman Sachs are leading the dollar and euro tranches, respectively.

Also very much in the pipeline is TDC Group’s “jumbo” refinancing, to be led by Barclays and HSBC, according to LPC. The refinancing was reported back in January 2022, and the company’s debt stack sits at around €7bn.

“I wouldn’t want to be the first deal to come out, but we know there’s a lot of liquidity,” said the third buysider. It’s like in Covid time, when no one wanted to be the first out. But when someone finally did, the terms were great. Everyone piled in and then the issuance exploded, so that might happen again!”

However, the second buysider noted the distinct difficulties of issuing in the current market, including inflation, which they called “extremely uncomfortable.”

Indeed, a fourth buysider concurred it was still a difficult time for new issuance. “It’s very tricky at the moment. We’re looking at crossover deals that have been pulled that looked cheap for the name. So if you’re in the market now you’re going to pay a huge premium. If you don’t have a direct funding need, it’s more of a wait and see.”

Leveraged Loans Secondary

As analysts keep their attention on earnings and their existing portfolio, many have been cautiously optimistic. The third buysider said: “Earnings season has been okay for the ones I look at (mainly software), but we’re still looking back three months. New effects will come through.”

Calls have in some cases been laser-focused on the Russia-Ukraine conflict, including Stark, despite limited exposure of 2% of annual spend in Russia and Belarus. The business posted blockbuster results this week; nevertheless, much of the call was still dedicated to the conflict. See our report here.

The same issue befell AerCap: the war in Ukraine overshadowed an ongoing recovery for the US aircraft leasing firm in its Q4 2021 results this week. As air traffic continues to pick up following years of international travel restrictions, the completed acquisition of GECAS has turbo-charged the lessor’s results, leading it into the hot cargo and engine markets, as well as cementing its position as the sector’s leading leasing giant. But much of the call was dedicated to the aircraft stuck in Russia and the Ukraine, which has led the business to submit a claim for $3.5bn. See our full report here.

“We believe that the full amount of our $3.5bn claim is valid,” said CEO Angus Kelly, on the call. “We intend to aggressively pursue all our claims under these policies with respect to our assets leased to Russian airlines, as well as all other legal remedies that may be available to us.” He added: “In this case we expect them to be contested, just given the large sums involved across the industry.”

Other companies such as market research firm Kantar, seem to stand to benefit from the conflict, with the third buysider noting that “in times of uncertainty, brands seem to do more research.” According to the buysider, the company reported growth across all areas following a strong year on its earnings call this week. Much of the call was focused on inflation, with the company stating its plans to protect its margins. Bonuses increased from last year, thus assuaging the third buysider’s concerns surrounding wage inflation.

Don’t sweat the secondary

Secondary markets appear to have firmed slightly this week. One of our more volatile credits this week, Holland & Barrett’s €418.9m TLB facing maturity in 2024 is up 7.6 pts against last week’s Thursday low of 65. The UK-based health foods retailer has been one of the few levfin names mired in the Russia conflict, with Russian oligarch Mikhail Fridman exiting the company’s board and distancing himself from sponsor LetterOne.

HSBC then withheld interest payments on its TLB over sanctions, according to the Financial Times, though the payment went through yesterday, according to sources close to the situation.

The third buysider wondered what the future for Holland & Barrett looks like, asking, “How far do you go? They’re making the owners sell Chelsea FC. Is this the direction it’s headed?”

Winning the silver medal this week, Sportradar, the listed sports marketing and technology business, rose 2.625 pts following stellar results. Revenue for 2021 increased 39% to €561.2m against the previous year, and adjusted EBITDA increased 33% to €102m in the same period. The company said both metrics outstripped forecasts. The third buysider was impressed by the results: “I looked at this in primary and I didn’t love it, but it’s done quite well since then.”

Taking bronze, Xella’s €1.945bn TLB also rose 1.8 points to sit at 98.125 following news that sponsor Lone Star would try to list the business for the second time, targeting a September float worth €2.5-3bn.

A recently minted LevFin name, listed digital services consultancy S4 Group, which is led by Sir Martin Sorrell, announced PwC had been “unable to complete the work necessary for S4 Capital to release a preliminary statement on time,” thus delaying the announcement for a second time, causing the listed shares to crash by 30%.

Although the business said results for 2021 would still be in line with market expectations, its €375m TLB has now dropped just below par.

Further information accessible, even to private lenders, is exceedingly limited and a fifth buysider complained that an update call was cancelled without explanation. Speculation from two buysiders has coalesced around accounting for roll ups and acquisitions, with the third buysider saying: “They’ve made a ton of acquisitions and there’s been a lot of pro forma-ing, which is partly why we didn’t invest. Sorrell was pulled up for accounting for acquisitions at WPP as well.”

After a brief respite from headline-making news, Schur Flexibles is back at the top of our downward mover charts. The company experienced accounting irregularities, which led to a -25 pt drop in late February, the first communications with lenders since the loan was issued in September 2021. Houlihan Lokey and Milbank represent lenders in current talks as financial and legal advisors respectively. As reported, a draft independent business review and company financing proposal is due to be presented to lenders at the beginning of April.

S&P downgraded the firm to CCC- (credit watch negative) in early March, citing limited liquidity, followed closely by Moody’s, which downgraded the business to Caa3 from B2 (negative outlook). See our report on the credit here.

Hilding Anders’ €500m TLB due 2024 dropped a further 1.5 pts against last week, and is now indicated at 49. The mattress manufacturer has its operations mired in Russia.

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