LevFin Wrap - I Oh U Changes, ‘Morrisons Makes It’ to 2022
- Huw Simpson
- +Laura Thompson
High Yield Primary
Perhaps unsurprisingly, no new deals launched in European High Yield this week. On Monday Phoenix Pharma postponed their €300m Senior Notes offering, citing market conditions, and now plans to re-engage with investors next year. The delayed Reno De Medici LBO financing rolled over the line on Tuesday, pricing at the wide end of IPTs and offering an additional point of OID (€445m E+525 SSFRNs, 98.5). Only B2Holding, the Norwegian debt purchase and collector, remains in-market, with no new updates on its proposed €300m Senior Notes deal.
Not a blowout
The age of Omicron? Not a new Marvel blockbuster, but the fifteenth letter in the Greek alphabet, following the WHO’s convention for naming the latest Covid-19 variant. Interestingly, since Delta, the preceding ten letters have been taken by variants ‘of interest’ (rather than ‘of concern’), or skipped for fear of causing offense.
Spreads admittedly still look fairly tight, just +70 bps off the pre-Covid lows of 3.01%, but have widened around 75 bps from mid-September. The iTraxx European Crossover – measuring the cost of CDS protection on the 75 most liquid HY entities – has jumped to ~280, up around 35 bps after news of the variant emerged. This week, we also saw the worst High Yield outflows in 56 weeks, with Global HY -$550m, US HY -$503m, and Euro HY -$823m.
Take your pick as the key driver for the recent movement, but Omicron appears to have been the trigger, doubling down on existing fears around inflation and supply chain issues, or the knock-on effects of Fed tapering signals. Perhaps there is also a feeling that borrowers have had their fill this year; opportunistic offerings have now dropped off, and volumes are expected to be low for the remainder of 2021.
Although this week’s slight rebound might revive sentiment, the window for 2021 is fast closing, and on Thursday Bloomberg revealed that the blockbuster Morrisons LBO will be pushed into the new year. As reported, yields on junk Sterling bonds had spiked to around 4.8% – with fellow supermarket Asda’s debt trading off in recent months. The £2,250m 3.250% SSNs are currently yielding 4.3%, while the £500m 4.50% SUNs are at 5.4%.
Of course, the new owners are keen to obtain cheap financing, and importantly higher coupons will eat into bank fees if they breach the agreed cap levels. On the CD&R bid these were set at 5.25% for the £SSNs, and 6.50% for the £SUNs (5.75% for the €SUNs). These will increase by 25 bps if new funding has not been secured by March 2022. When you also account for Morrisons’ higher opening leverage (Morrisons ~4x | ~5x, vs. Asda 2.7x | 3.4x – secured | total), the caps start to look much tighter than a few weeks ago.
High Yield Secondary
After last week’s -0.69 pts softening, Secondary regained some ground, up +0.17 pts on average (58% +0.50 pts | 38% -0.32 pts). Energy (-0.15 pts) was the only industry to fall meaningfully further, while Healthcare (+0.53 pts), Consumer Staples (+0.39 pts) and Communication Services (+0.31 pts) saw the best returns on the week.
If we look over the last month however, the picture is still overwhelmingly red, with Energy (-0.92 pts), IT (-0.70 pts), and Financials (-0.63 pts) faring worst.
We cover distressed earnings in more depth in the Friday Workout, but a few single names are worth mentioning.
Loewen Play €350m SSNs due 2022 dropped nearly five-points from ~93.8 on Friday morning, before retracing just over +1 pt to 90.4 at midday. The movement comes on the back of a restructuring proposal which would see bondholders taking 95% of the group.
Italian Serie A club Juventus FC saw it’s 2024 SUNs fall more than three-points on news that the group is under investigation for player trading between 2019 and 2021. The club is cooperating with the investigators, and believes it has “acted in compliance” with the laws.
Fellow Serie A club Inter Milan announced Q1 earnings on Monday, confirming recent refinancing rumours on the call. Sales were down -31.5% YoY, but performance on the 4.875% SSNs due 2022 has been propped up by sale rumours since majority owner – Chinese retail giant Suning – stated it was looking to shed non-core businesses. The notes are currently trading at around 99.2.
In other news, Chicken producer Boparan’s SSNs due 2025 gained a further 2.6-points this week, after trading up last week on Q4 2021 earnings which announced stop-gap liquidity via a £50m mirror bond issuance and a commitment to provide a £10m TLB. On Wednesday, S&P affirmed their B- rating, revising the outlook to ‘negative’ on weak poultry profits. Read our earnings review here.
And finally, it emerged today that A.P. Moller Holding – owners of shipping group Maersk – has agreed to buy Unilabs. Existing owners Apax were reportedly considering a sale in 2019, which would have valued the group at €4bn (~14x EBITDA). Sale rumours were revived in late September this year, with Bloomberg suggesting the deal could value the group at around $5bn. You can read our June 2021 deal prediction here.
Leveraged Loans Primary
Omicron anxieties rattled through the loan market this week. Several LBO deals including the long-awaited Morissons loan have been delayed until 2022, buyside sources say. However, CLO managers argued that accounts have largely shrugged off revitalised Covid concerns, with softness only creeping into the bottom part of capital structures with the unabated supply of CLOs keeping lev loan demand high - read more here.
Other than that, it is all quiet on the leveraged front. With advent calendars officially in play, just one loan launched this week, a $350m offering by Swedish pest control company Anticimex. The company was last in market in July this year with a tri-currency £1.8bn-equivalent package supporting its move between sponsor EQT funds.
I Oh U Changes
German private university business IU Group made big documentation concessions to its €500m TLB before closing this week. This was no shock to buysiders: “They had to move to get this through,” one said. “There wasn’t the appetite at the price they were trying for.”
Crucially, the revised docs cut a portability feature that had caused buysiders particular ire, given sponsor Oakley Capital’s lack of equity in the business. In combination with the newest transaction, sponsor’s shareholder distributions would total €415m, having taken out a €240m dividend in the previous transaction.
Other changes include adding in a ticking fee, as well as axing the inside maturity basket and the available RP capacity amount basket. New docs also slashed the RP general basket from 40% to 25% of EBITDA. Clients can read a full list of doc changes here.
IU similarly conceded on pricing: the loan firmed at 50 bps wider than guidance at E+500 bps, with OID 1 pt wider to 98.5. Despite acknowledging massive growth in student intake in recent years, some buysiders passed the deal on a hefty EBITDA bridge of around €50m, lack of real assets and unfamiliarity with a sponsor with no skin left in the game. Clients can read the full preview available here. If you are not a client but would like to sign up for a copy, please complete your details here.
OGF buries 100 bps on A&E
Elsewhere, French funeral provider OGF is out to A&E. The company is seeking to push maturity on its 2023 TLB out 2.5 years to 2025 in exchange for a 100 bps margin uplift to E+475 bps. The loan will be cut from €940m to €816m, with a €125m PIK set to pay over 10% raised alongside.
Led by BNP Paribas, the deal offers a 25 bps consent fee and 25 bps early bird fee. Forward looking EBITDA is around €125m, while senior leverage is high at 6.0x.
Some buysiders were split on whether to take their A&E. “We would rather be repaid at par and exit or would be more interested in a new deal with higher spread and new leverage rather than amendment and extension of an existing facility,” said a second buysider.
OGF unsurprisingly upped its revenues during the pandemic, though not as dramatically as some buysiders would have hoped. Declining market share also kept some buysiders coy, though lively EBITDA margins versus peers and a new management team with plans to reverse historic inefficiencies, such as slim opening hours, are seen as positives.
Finally, French logistics company Staci’s slim €65m 2026 add-on priced at E+500 bps and 99.50 OID this week, in line with the existing fungible €248m TLB. The funds refinance drawings of an RCF and a €15m equity bridge loan.
“It’s a small enough deal that only existing lenders are really looking at it,” a third buysider said of the Ardian-owned business. “But it’s still not a straightforward credit, so both those things mean it’ll come at a bit of a premium to the rest of the market.”
Leveraged Loans Secondary
Similar to last week, names that took the hardest beating this week were those contingent upon reopening, with fresh European lockdowns and Omicron dominating headlines. Alongside a general softening in secondary, French campsite Vacalians (-3.8 pts), cruise ship operator Hurtigruten (-2.6 pts), Spain’s Hotelbeds (-1.8pts), plus cinemas Cineworld (-3.2 pts) and Vue (-2.3 pts), all took top spots this week.
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