Full Grain - Low Grade

Revenues come mostly from Europe (88%), with seat coverings, interiors and steering wheels marking the largest segment drivers. Notably, Porsche and JLR collectively represent more than half of the group’s revenues.

ESG focus on the credit revolved around an EarthSight report which suggested Pasubio purchased more leather from areas involving illegal destruction of crucial Paraguayan forest than any other company (39% of the total exported). Although you might question the objectivity of a special interest report such as the one produced by EarthSight, if true, the allegations are difficult to ignore.

On an unrelated note, Pasubio CEO, Luca Pretto, is subject to legal proceedings in connection with a workplace accident. The employee allegedly fell in a canal. Mr. Pretto is appealing.

IF you would like a copy of our full ESG Quick Take, please email team@9fin.com

Despite midweek fears the deal was stalling, price talk of E+450-475 emerged on Thursday, and finalised same-day at the tight end - seemingly undeterred by the widely cited ESG concerns.

Itel-yum

Sustainability-linked financing for the Stirling Square - Deutsche Beteiligungs buyout of Itelyum also launched this week via issuer ‘Verde Bidco’. Acquired in August, financing for the Italian waste management group is made up of the €450m SLB, a €312.5m equity contribution and around €30m of cash (8.3x EV/EBITDA multiple).

Operating in three business segments, Itelyum provides (i) environmental services; a one-stop shop for treating waste and wastewater, (ii) regeneration; the re-refining of waste oils, and (iii) purification; the production and sale of solvents derived from the regenerated oils.

The business model is clearly suited to sustainable ambitions, and as of 2020 had capacity to treat around one million tons of special waste per year, achieving circularity rates of over 90%. What drew particular interest on this deal was the novel redemption premium step-up. Typically, SLBs feature a coupon step-up mechanism - whereby failure to meet certain KPIs results in a higher interest rate. In the Itelyum deal however, the step-up only applies to redemption premiums - increasing the call premium by 0.3% if the issuer fails to meet one of its KPIs, or 0.6% if it fails to meet both.

As a new and developing area, we’ve been waiting for creativity in the structuring of ESG products. The implication for Itelyum is a less onerous penalty - they can control the timing of any redemption (in effect pausing any redemption plans while targets are not met), and only pay the premium on the portion of the bonds being redeemed, as opposed to a coupon step-up on the entire principal. It’s also worth noting that the issuer could simply use alternate redemption options, the equity claw and/or 103 provision, buy the bonds in secondary, or even tender at below the specified redemption price. Read our piece in full here.

Strong demand on the books helped pricing strip back from 5.00-5.25% IPTs, to the 4.75% area, before landing at the tight end for 4.625% on Thursday.

Chatter on the final LBO in market - Solenis - seems to have gone quiet, we’ve seen no updates beyond the whispers heard last week. IFR reported the dollar and euro SSNs at low 5s and low 4s, with the dollar and euro SUNs in the high 6-7% and high 5-6% range respectively.

The house always wins

Investors in Spanish gaming company Cirsa have entertained a wild ride over the last eighteen months, as the group's small online presence (~12.5% June-2021 H1 sales) struggled to compensate for the lack of in-person gambling at its Casinos and Bingo Halls.

Announced on Tuesday, Cirsa launched €400m in Senior Secured Notes due 2027 (B3/B-) to redeem a portion of the pricey $550m 7.875% SSNs due 2023, alongside a €55m RCF repayment. Twice upsizing, the notes grew first to €500m, and again to €615m, with the additional proceeds first redeeming the dollar notes in full, but also a portion of the €663m 6.25% SSNs due 2023 and further increasing availability under the RCF.

Heavily exposed to FX risk in Latin America (36% of revenues are in non-euro currencies), the group does not hedge, despite a capital structure almost solely denominated in euros. As S&P notes, vaccination rates remain low in LatAm, where around 50% of EBITDA is generated, with correspondingly greater restrictions still in place.

Despite the successive upsizing and obvious credit risks, Cirsa still managed to price tight to talk, with a final coupon of 4.50% - already showing the strength of demand post August break.

High(er) Grade

Turning to the better rated and rising stars, Elis, Almirall and Smurfit Kappa all printed Euro refi’s this week. French cleaning and services provider Elis priced a €200m tap of its Senior Notes due 2028 at 100.125, Spanish pharmaceuticals group Almirall priced €300m 2.125% Senior Notes 2026, and this year’s new rising star Smurfit Kappa priced €500m of eight and 12 year Senior Notes at 0.50% and 1.00% respectively.

Elsewhere, hygiene and cleaning company Diversey priced $500m 4.625% SUNs due 2029 (Caa1/B). As we note in our Legals QuickTake, there is huge covenant capacity on the deal - in particular; backdated builder capacity and day one RP leverage capacity, which when combined with other aggressive features, gives the company ‘wide latitude to spin off assets or otherwise leak value away from the Restricted Group’.

New Peak for Primary

Supply appears to have broken through the magical €100bn mark. We track European High Yield supply (excluding USD) at almost €105bn already, and there seems little indication that supply is overwhelming the market. Volumes YTD exceed full year volumes in each of the prior three years.

Leveraged Loans Primary

Last week’s Wrap looked at the gentle widening of pricing and OIDs on leveraged loans compared to before the summer break. However, buysiders are taking this (on the surface level good news) with a pinch of salt.

Firstly, buysiders note that two of the 400 bps-plus margin B2 loans issued last week drove pricing tighter, not once, but twice this week. One, Schur Flexibles, flexed its €475m 2028 refi (B2/B) to final guidance at E+425-450 bps and 99.5 OID guidance. Previously, the deal guided at E+450-475 bps and 99 OID, then at E+450 bps and 99 to 99.5. “It’s a bit of an odd one because loans are coming in wide but then tightening up to where I’d be expecting them to come out,” remarked one buysider.

Another buysider cautioned that, although initial pricing might appear wide, lev loans are coming with increasingly aggressive margin ratchets, often close to opening leverage, that grind margins “50 bps lower in no time”. They added: “We’ll see that pain come through sooner rather than later.”

The Roompot purge

Netherlands-based holiday park operator Roompot checked in several doc changes ahead of closing its €1.05bn 2028 TLB (B2/B), which supports the acquisition of peer Landal. Most crucial for lenders was what some dubbed a “make or break” lack of material asset security (see preview here), noting that €1.4bn of the KKR-owned company, which they valued at €2bn, was made up of hard unencumbered assets. Buysiders also argued that some form of asset security is standard in this sector, pointing to competitors NH Hotels, Centre Parks and Merlin Entertainment.

KKR did end up granting Dutch security, according to a market source. However, buyside sources had also expressed concerns over provisions in the original docs allowing sale and leasebacks of assets, as well as permitting asset sale proceeds to increase the restricted payments basket. “So even if we get the security, that doesn’t mean I’m going to be entirely comfortable with this if they can turn around, sale-and-leaseback it and recap those proceeds,” explained a fourth buysider. “It’s more complex than just whether the security is there or not.”

A 25 bps margin ratchet was also cut from three to two following investor feedback.

KKR kept in another feature controversial ticking off some buysiders: a lack of ticking fee for existing lenders into both Roompot and ex-Landal owner Awaze. “This [acquisition] will have to go through antitrust, so you could be talking six months where I could be putting my money to work somewhere else,” said the fourth buysider.

Meeting lenders in the middle with some of these features, however, saw Roompot screw down guidance twice, ahead of closing at E+400 bps and 98.5 OID. The deal originally guided 50 bps higher at E+450 bps.

Add-on comeback for safe play Paysafe

Turning to new issuances, UK-headquartered payment processor Paysafe came back to the lev loan market this week with a $710m dual-currency add-on to fund the acquisitions of peers SafetyPay, viafintech and PagoEfectivo.

This is a quick return for Paysafe, with the add-on topping up €435m and $628m 2028 TLBs cashed in only this June. That financing, which itself followed a $3.6bn post-SPAC equity feast, closed on the tight end of its guidance at E+300 bps and L+275 bps respectively.

At the time, buysiders told 9fin they saw the business as a safe play and a welcome breath of fresh B1/B+ air following months of credit quality decline. “It’s an asset light business, it’s in the right sector for long-term stability and it’s also keeping pace with some of the newer developments in its space - online betting, cryptocurrency,” one buysider summarised.

The Stada something new

Also new, German pharma firm Stada’s dual currency €350m 2026 add-on (B2/B/B+) launched this week. Funds look to repay existing OpCo notes. The company, which produces generic drugs such as cold and flu meds, is repaying debt amounting to €267m, according to Moody’s, though the agency still puts leverage lofty at 7.4x.

The deal guides at 98 to 98.5 OID on a euro tranche, while a sterling tranche is guiding at 98.5 to 99 OID. The add-on will be fungible with the existing 2026 loans, which pay E+350 bps and S+Cas+450 bps respectively.

Unusually, this is a pharma firm who ratings agencies note has had an adverse reaction to the pandemic as Stada’s cold and flu business was hit by social distancing keeping populations germ-free. EBITDA fell 11.2% YoY, according to Stada’s H1 21 results.

Polygon gone poly

Finally, Swedish property damage fixer Polygon is out with a shapely total of €695m debt financing backing its 62% acquisition by AEA Investors from Triton Partners, as well as support future earn-out payments. The company provides restoration services to buildings affected by damages including water and fire damage, which could appeal to buysiders as a non-cyclical business with long-term prospects amidst Earth’s ongoing climate apocalypse.

The company’s website fronts its growth through acquisitions strategy, having snapped up Netherlands-based ACI-Group, German TKL and Norwegian Kaph Entreprenor so far in 2021. This spending spree has been positive on the company’s EBITDA (IFRS 16), which swelled a healthy €20m to €97.2m at LTM June 2021 versus December 2019.

The debt is made up of a €430m TLB (B1/B), €120m pre-placed second lien and a €55m delayed draw facility, plus a €90m RCF. A lender call is scheduled for the coming Monday.

In other news

• Spanish healthcare company Grifols settled on Bank of America for its €2bn unsecured bridge facility backing its €1.1bn Tiancheng acquisition.

High Yield Secondary

Across HY, instruments gained an average of +0.10 pts on the week (61% +0.31 pts | 35% -0.25 pts). By Industry, Energy (+0.25 pts) tops the list, closely followed by Communication Services (+0.24 pts) and Industrials (+0.20 pts). Real Estate remained the only Industry with an overall loss, trading down -0.38 pts, thanks in large part to a sell off across Adler Real Estate’s Notes.

In single name moves, Lowen Play’s €350m Senior Secured Notes traded up over +2 pts on the week (shown below), with its Q2 earnings call on Friday. Revealed by CEO Tal Zamstein, the group is "preparing in the near future" for a refinancing via new SSNs, and “heading forward with those preparations”.

The iTraxx Europe Crossover was this week seen at 223.5 bps, tightening on 226 bps seen last Friday. From Monday the index will roll into Series 36.

Leveraged Loans Secondary

No matter how early Pret is pushing their Christmas recipes on us, it’s not the festive season yet; but that doesn’t mean Christ can’t celebrate. Its €170m E+450 bps 2021 TLB rose by a holy 8.5 points to 82.75, making it the secondary market’s biggest mover this week.

GTT Communications took silver this week, as its €750m TLB paying E+375 bps rose by almost 2 pts to be indicated at 90.75. The company announced entering into a restructuring support agreement on 2 September 2021 and expects the sale of its infrastructure division to I Squared Capital imminently. It will then take measures to reduce its debt by $2.8bn.

Cineworld and Vue also experienced upward pressure on the price of its loans this week, following major movements for several weeks now.

Vue is experiencing a bump after its loans dropped at the beginning of September by 1.7-pts, in the wake of a consolidated EBITDA loss of £7.3m in the first half of the year. Vue has two TLBs, each paying E+475 bps, and second lien PIK notes paying E+1000 bps, maturing in 2024, 2026 and 2027, respectively. It also has a £65m Revolving Credit Facility, maturing in 2025. All its instruments are now indicated around the 93.679 mark.

Though still moving on up, Cineworld’s €607.7m TLB paying E+263 bps is now indicated at just 80.5. The company has experienced a dramatic year of Covid-19 closures, while Fitch placed the cinema chain on negative watch in May 2021, citing a $255m claim from unhappy shareholders following Cineworld’s acquisition of Regal Entertainment Group that Fitch reported could lead to a Q3 liquidity crisis. The agency also noted uncertainties around the company’s liquidity, with Cineworld burning around $60m of cash per month during cinema closures, plus a dim picture on future attendance.

However, the silver screen turned brighter as a $205m tax receipt reduced cash burn from $271m to $67m for the six months to June, with liquidity further buoyed by around $400m of debt raised and around $200m from the US CARES act. Positive working capital dynamics as a result of an April/May reopening of the estate also helped stop the rot.

On the losing side of the secondary market, Dutch lingerie producer Hunkemoller saw its €280m loan paying E+450 bps drop by 2.75-points to be indicated at 93.75. It appears lenders have not become excited over the announcement that Carlyle is once again looking at options to sell the business, in a deal that could value the company at more than €1bn, according to a report by Reuters.

In addition to the biggest movers in the market, September has seen several large BWICs. Last week, the market was treated to a CLO liquidation, according to a source speaking to 9fin, and on Tuesday, €140m of clips were also circulated.

On offer was a €6m chunk of Refresco, €5.5m worth of Sebia and €4m worth of Ceva Sante Animal, Memora and Upfield (Flora Foods) each.

In addition, a market source has told 9fin that a significant BWIC of €370m could potentially be going out to market today.