As Moody’s note, the water treatment market benefits from stable recurring revenues, and in particular, Solenis has set out a path to increase its composition of higher margin products while reducing costs to generate those all important cost synergies. A mixture of foreign exchange add-backs, severance fees, combination synergies, and over $100m of ‘other separation and non-recurring expenses’, moves clean EBITDA of $340m to the fully adjusted figure of around $613m.

Solenis’ eighty-two page sustainability report is packed with wide ranging ESG metrics and ambitions, and the group has actively mapped its priority sustainability topics, which together suggests good engagement. It does however lag peers Ecolabs and Kemira on its emissions targets, which are unambitious and not Paris aligned.

As expected for an LBO, Legals on Solenis came with a number of aggressive features, notably; uncapped 1L acquisition debt if the FCCR does not deteriorate, a 200% contribution debt basket and a sizable Restricted Payments starter amount which lacks the typical EoD / Default blocker.

Pricing potential

On Thursday afternoon, price talk emerged on the TLB portion, with the seven year USDs at L+400 (OID 99) and the EURs at E+400-425 (99.5), offering a signal for where the bonds might land.

Unofficial IPTs were rumoured at 4% on the SSNs and 5% on the SUNs, which would make pricing on the SUNs among the tightest of any post-covid European LBO, in-line with Cerba’s €325m SUNs due 2029 (Caa1/CCC+). We’ll have to wait and see for official IPTs, but the rumoured 100 bps spread between the SSNs and SUNs is also eye-catching. To date, Asda paid the slightest premium for investors looking at the unsecured leg of an LBO, offering just 75 bps in the February-2021 buyout by TDR and the Issa Brothers.

Speaking of TDR and the Issa brothers, on Thursday Bloomberg reported EG Group was in conversation with advisors, weighing a $15bn sale of the forecourt empire, or even a potential IPO. The firm’s £675m SSNs due 2026 shot up around +2.5 pts on the news.

In other news

• We published our inaugural Excess Spread newsletter, where 9fin’s Owen Sanderson muses on happening trends, deals and more in structured credit and ABS. In his own words: “we’ve got big plans to come - watch this space.”

• A special forces-led coup in Guinea has led to decade-high aluminium prices, as concerns were raised over disruption to bauxite supply. The country is the largest global producer and exported 66.2m tonnes of the aluminium ore in 2020. 9fin’s Rubi Gjika investigated the impact on several HY names, including Industrial companies Mytilineos and Metalcorp. Packaging is also unsurprisingly affected, with Constellium, Canpack, Titan and Ardagh Metal Packaging in the headlights.

• 888 has entered an agreement with Caesars Entertainment to acquire the international business of William Hill for an EV of £2.2bn. 888 has obtained fully committed debt financing of ~£2.1bn to fund the transaction, and intends to raise ~£500m in new equity to reduce pro forma net leverage below 4x. Completion is expected in the first half of 2022. William Hill's NCL SUNs due 2023 and 2026 traded up +1.6 pts and +2.7 pts in response, seen today at almost 106 and 109 respectively.

• Morrisons, who announced H1 results yesterday (09-Sep), are reportedly heading to auction in order to settle the takeover battle between CD&R and Softbank-owned Fortress.

Leveraged Loans Primary

While HY might have had a slow start, lev loans returned in full force this week, with buysiders invited to a feast totalling €4.9bn-equivalent in market after August’s famine.

Even with this fresh rush, multiple buysiders are pegging next week for when the market really kicks into gear - a fact met with mixed excitement and trepidation. For one, with a fresh CLO currently ramping up, any supply is welcome. A second admits to spending most days this week casting longing looks at their Netflix list.

Despite expectations of plenty, 9fin is hearing very little concern around the capacity of the market to hoover up deals. Partly this is down to that expectation, which has given teams time to prepare for any and all onslaught. “I’m not worried about the flow of the market,” said a third buysider. “If we have to build up the team to meet supply, we will. Simple as that.” A fourth, more glum, added: “It’s not like I wasn’t pulling weekends before the summer anyway.”

One thing buysiders are uniformly noticing is the widening of this week’s deals compared to pre-break. To focus on B2 deals, which dominate, most this week serve up at least E+400 bps: meanwhile, 9fin data puts average margins on B2-rated European leveraged loans at 375 bps in August and 397 bps in July after averages of 384 bps in Q1 and 383 bps in Q2.

OIDs similarly are trending wider, something buysiders also welcome: “Everyone knows there was some mispricing in the first half of the year. These are positive signs that maybe things are correcting a bit,” said the fourth buysider.

Still waters run deep

Water treatment and chemicals firm Solenis started off the week’s deal flow with its $1.4bn dual-currency TLB (B2/B). Proceeds, alongside the bond offering (see above), will fund the firm’s buyout by Platinum Equity, plus support the merger with Platinum’s existing portfolio company Sigura Water.

Buysiders are cautiously wading into this once, focusing on potential ripples from Solenis’s “controversial” new owner: “This one sits with our US analysts and they really don’t like Platinum,” said a fifth buysider. “They’ve been historically aggressive on their deals and burned a few bridges with lenders in the past.” A previous Platinum deal, another Spanish water treatment company Urbaser, pulled its €1.63bn TLB from the market before the summer break.

Despite increasing margins by 100 bps from E+350 bps to E+450 bps, buysiders shunned the deal, with some pointing labelling the sponsor “unsupportive”.

On a similar note, our ESG QuickTake concludes the company has some ways to go for a clean environmental record: alongside the material risk of increased water consumption, Solenis is lagging behind industry peers on renewable energy use, all the while not aligning its goals with the Paris Agreement.

And don’t call me Schur-ly

Next in new deals, packaging firm Schur Flexibles returns to the market with a seven-year €475m TLB refinancing (B2/B). Again, the third buysider notes this is guiding high of where they would expect a B2 deal at E+450-475 bps and a 99.0 OID. A new €100m RCF sits alongside.

Schur - which produces flexible packaging for the food, pharmaceutical, cosmetic and aroma protection industries - will use proceeds to refinancing existing debt (€390m plus a B&C subordinated loan of €50m), purchase a minority interest (€18m) and pay transaction fees (€17m). Austria-based investment holding company B&C Group acquired 80% of Schur from Lindsay Goldberg in May 2021.

As with other plastics packaging companies earlier in the year, buysiders initial thoughts are on sustainability and raw material shortages: as Europe is a net importer for polymer raw materials, it is vulnerable to supply chain disruptions, explained one packaging analyst, adding that supply constraints are expected to be a downward pressure on margins in the sector through 2021. Request a Legal QuickTake by emailing loans@9fin.com.

Another sure thing

From Schur to insure: market returner British retail insurance broker Howden (Hyperion Insurance) launched a dual-currency TLB (B2/B) this week to back its acquisition of Align Financial Holdings. At the same time, the company is upsizing a £60m senior secured RCF to £185m.

A €350m tranche guides at E+350 bps and a $415m tranche guides at L+325 bps, both boasting a 98.56 OID. Margins match Howden’s previous foray into the market, although now the insurance firm is looking to reassure buysiders by widening its OID +1 pts compared to its last offering. Howden last came to market at the start of the year, firming up a $1.265bn and €317m TLB at L+325 bps and E+350 bps respectively, both at 99.875 OID.

All aboard the Orion Express

Luxembourg-headquartered Orion Engineered Carbons is also out with a $650m sustainability-linked refi, to be split between euros and dollars. A +/-10 bps margin ratchet is linked to two KPIs; according to S&P, these are “substantial” sulphur dioxide and nitrogen oxide reduction emission cuts at its North American plants.

The company produces carbon black - a carbon powder or bead used primarily as a strengthening agent, pigment or insulator. It is mostly found in rubber (tires, shoe soles), but also products such as inks and batteries.

Ratings for the TLB are high at Ba2/BB on the back of continued solid performance, with Q2 2021 adjusted EBITDA margins at 20% and free operating cash flow at €55m. This will prove a boon to some buysiders, three of which have told 9fin this week that they are itching for higher rated deals after a H1 slump in quality.

“I’m looking out for the better rated deals this time around,” admitted one buysider. “Quality was a huge issue in H1 and with allocations so poor, we sometimes took on deals we might have otherwise passed on. Now it’s about nudging the portfolio back towards better credits.”

Orion’s last TLB priced at L+200 bps on a $288m dollar tranche and E+225 bps on a €329m euro tranche.

DexKo decks out

And finally, US-based DexKo Global launched today; this was one of the jumbo deals on buysiders’ pipelines. The firm, which manufactures components for trailers and RVs, is towing along a $1.25bn-equivalent euro and $960m TLB to hitch itself to Brookfield Business Partners. The $3.4bn acquisition will also be funded with a $1.1bn equity cheque, of which $400m will come from the sponsor and the remainder from institutional partners.

As reported in last week’s wrap, buysiders are split over the cyclicality of the business versus strong cash generation. Guidance is yet to come, though previous TLBs closed at E+400 bps in 2019 and E+375 bps in 2018.

Covid complexity for DomusVi, but room for Roompot

Buysiders continue to mull last week’s first reopeners. French nursing home provider DomusVi returned last week with a €350m add-on (B2/B/B) to fund acquisitions. Guiding at E+400 bps, the deal resulted in a downgrade from Moody’s to B2, as well as a prior €1.92bn 2026 TLB slipping to B3, on upped leverage not mitigation by a €200m shareholder equity injection.

Some buysiders are trying to iron out the wrinkles in a series of add-backs to the deal, saying that their like of the business is tempered by the aggressiveness of the deal structure. Covid further cast a long shadow over this industry. Investors are aware of the bad press, and even worse reality, of 2020 in the nursing home sector, though one states that occupancy numbers are rebounding. Overall, buysiders are pleased with the usual – albeit grim – market trends of aging populations and rising rates of associated diseases, such as dementia.

Moving swiftly on to less depressing deals, leisure-sector analysts are getting their teeth in Roompot’s seven-year €1.05bn TLB (B2/B)ahead of next week’s commitments. Opinion is split on whether the current peak of staycations is a pro or con to this deal: “This is the company’s peak for sure: it’s capacity is near to full through summer months. The question is whether you want to be buying at the top of the credit – is this as good as it gets for domestic holidays?” asked one buysider, who themselves takes their family on Roompot holidays. Request a Legal QuickTake by emailing loans@9fin.com.

High Yield Secondary

Secondary traded up marginally on the week, gaining +0.03 pts (46% +0.28 pts | 50% -0.19 pts). By Industry, Financials (+0.13 pts) saw the greatest move, followed by Communication Services and IT (+0.09 pts). Non-cyclical industries fared worst, with Healthcare (-0.11 pts), Consumer Staples (-0.13 pts) and Real Estate (-0.16 pts) all down on the week.

• German packaging manufacturer Kloeckner Pentaplast faced difficult questions around inflation expectations and full year guidance on their Q2 earnings call (08-Sep). Both the SSNs and SUNs (shown below) yo-yoed around the call, before settling fairly flat on the week.

• Inflation was also a focus on the Iceland Q1 earnings call (07-Sep). Management were peppered with questions about the nature and longevity of cost increases, which had pushed EBITDA to a ~50% decline versus the prior year. Widely reported lorry driver shortages have created further headaches, and the pressure on supply chains is expected to continue into 2022. The 2025 and 2028 SSNs (shown below) dropped -1.2 pts and -1.7 pts in response, currently trading around 97 and 91 respectively.

The iTraxx Europe Crossover tightened further this week, seen today at 226 bps just inside 227 bps last week.

Leveraged Loans Secondary

While primary began to churn, secondary waters stayed still this week. “I re-focused on secondary in August, but prices are still so artificially inflated that, to be honest, I’m happy to get back into primary,” said the fourth builder. “Opportunities in secondary have been challenging to come across for a long time now.”

Nonetheless, over in individual movers, long-beleaguered PlusServer fell a staggering -11.1 pts to 69.3 pts on both its €260m E+375 bps TLB this week. The German company provides cloud services and solutions, however a fifth buysider this week described part of its business as “completely killed off” by Amazon: “There’s no expectation they can recover those revenues,” they said, adding that they’d be surprised to hear of any trading on this name.

It is joined by another familiar face, Triton-owned Arvos Group, which continued its slide, this time -2.1 pts on its €130m E+450 bps TLB to 82 pts. Arvos, which inked an amend and extend in February 2021, provides industrial equipment and services, primarily to thermal power plants and chemicals companies; it was downgraded Arvos to Caa2 by Moody’s last month. This is another one, however, seeing little trading activity: existing lenders are “stuck” with this company, a sixth buysider told 9fin this week.