High Yield Primary

Playing it cool

Hailing from Sweden, Dometic provides a mixture of recreational and ‘mobile living’ products for RVs, commercial/passenger vehicles, and boats. Offering €300m of Senior Notes due 2028 (Ba1/BB-) under its EMTN programme, IPTs were sent out in the 2.5% area, with PT at 2.125%, and final pricing at par for an impressive 2.00%. It’s possible this was too impressive however, and the bonds have since traded off; last seen today at 99.58.

Marketed for general corporate purposes, the additional cash reduces net leverage to 1.4x. However the $677m (plus up to $223m earn-out) acquisition of ice-box manufacturer Igloo is set to increase leverage by 1.3x. The group has already made ~$287m of acquisitions in 2021, driving consolidation in a largely fragmented market.

Next up came US Healthcare REIT Medical Properties Trust, who announced a benchmark five-to-seven year euro offering on Wednesday, with proceeds to refinance the existing 4% Senior Notes due 2022, and the remainder for general corporate purposes (including future amounts under the RCF, working capital and potential acquisitions). Settling on the shorter tenor, the group priced €500m Senior Notes at just 0.993% (Ba1).

Goodyear rounds out the trio of BB names, launching €300m in private offering of Senior Notes due 2028 (Ba3/BB-/BB-) to redeem the existing 3.75% €250m 2023s (the remainder again for general corporate purposes). Burning rubber, the deal was sent out with IPTs of 3.00-3.25%, which twice tightened before landing at 2.75% with a €100m upsize.

Europcar Reboots

It was a similar story for French car rental group Europcar, whose new €500m of sustainability-linked Senior Secured Notes due 2026 (B2/CCC+) tightened successively; from 3.25-3.50%, to 3.00-3.125%, before pricing at 3.00% for par.

The timing of the deal was partly surprising. Since Volkswagen are expected to acquire the group in Q4 2021 (or early 2022) it seemed a strange time to raise new funds - why not wait and enjoy the cheaper cost of capital under new ownership? The new Notes however do include Volkswagen AG as a permitted holder (meaning no 101 put right with the change of control), and the timing could have proved tight, with the existing SSNs going current in November this year.

In April the group completed its corporate debt restructuring, which reduced debt by €1,100m, alongside a capital increase and €225m new fleet financing facilities, leaving the fleet EC 2022 notes in place. At the time this led CEO Caroline Parot to assert, “we are back in the game”.

This isn’t a view shared by all investors. Pains still lingered for one buysider, who commented:

“I got burnt really badly on this credit last year, a complete mess, so it’s an instant no from me. Don't even need to look at it. My colleagues would be asking what was wrong with me if I said I wanted in on this one again, I’d look like an absolute idiot.”

On the ESG front, Europcar does lead peers on climate engagement and emissions reductions. Its SPTs are however required by EU law, and so don’t necessarily show ambition. It’s also worth noting rental car firms have a poor reputation with customers, in particular Europcar’s ‘Goldcar’ subsidiary, which was branded ‘by far the worst rent offender’.

If you would like to read our Credit, Legal and ESG QuickTakes on Europcar, please complete your details here.

‘Project Bunting’

The week’s final deal came from Altice France (SFR), who launched an opportunistic refinancing of its remaining 7.375% SSNs due 2026 with $3bn (equiv.) of SSNs due 2029 (B2/B). A 9fin deal prediction, the new Notes will also be used to pay the €515m consideration for Coriolis, Afone and Prixtel - and a chunky €84m in fees and expenses. Final terms emerged at 4.25% for the €800m tranche, and 5.50% on the $2,000m tranche.

As a frequent market participant, Altice is able to time it's entrance to the market. IFR notes Altice was able to jump in and scoop up demand that’s still waiting for the Autumn supply wave. Perhaps muted by Evergrande fears, next week is now ticketed for the launch of several blockbuster deals, including the loan portion of Modulaire and Arrow Global. Masmovil has scheduled a lender meeting for Monday to discuss its €800m TLB, as part of the financing for Euskatel.

Back to EBITDA add backs

While perhaps not necessarily a new topic, several clients in recent weeks have enquired into EBITDA add-backs across High Yield deals. You can see the 2021 names with greatest synergy and Covid related add-backs below - watch out for the full report next week.

Leveraged Loans Primary

As issuance finally picks up, after weeks of big pipeline talk and little pipeline action, the market continues to prove borrower-friendly in every way it seems able. Buysiders are facing increasingly aggressive docs, OIDs and margins are tightening and tranches are upsizing, in a bonanza of sell-side success.

But, while almost all buysiders will have complaints about documentation standards, security packages, add-backs and the like, the terms where they’ll stand their ground on a deal tend to be those which hurt the upfront economics, rather than theoretical recoveries in a restructuring.

Aggressive margin ratchets or miserly ticking fees hit loan investors even while a credit is performing, and are effectively part of the price negotiations — as one account argued on Roompot, even at the E+450 bps original talk it deserved to be treated more like a E+385 bps loan, after factoring in leverage-based margin ratchets and a big ESG step down (15 bps).

So that made it all the more notable that lenders in the Solenis euro TLB were pushed into line with their dollar peers, and made to swallow a 25 bps stepdown at 4.5x first lien leverage — only a whisker below the 4.6x secured leverage on which the deal was originally marketed.

Lenders have slightly more of a cushion until the ticking fee kicks in though, as the capital structure for the water treatment company’s LBO was recut during syndication to take $290m-equivalent out of the unsecured bonds and add it into the first lien, taking initial leverage over 5x.

In DexKo, though, investors had some success in resisting the ratchets — though with little success on an all-in basis. The deal was initially marketed with two 25 bps stepdowns for leverage reductions of 0.5x and 1x, but the dollar facility saw all leverage-based stepdowns stripped out, with only an IPO-related 25 bps reduction.

Unfortunately for the buyside, that came alongside tighter headline pricing, with the final margin set at E+375 bps from talk of E+400-425 bps on the dollar tranche, handily erasing the benefit of ditching one of the ratchets. The euro tranche priced at E+400 bps.

Sponsor Brookfield also eased the ticking fee regime on the delayed-draw portion of DexKo loan, with the fee hitting 100% of margin two months earlier than initial marketing, at day 121 rather than 181. A 50% of margin ticking fee will apply from 61 days, in line with the initially marketed structure.

Tight pricing continues to be a running theme across the market, in better-rated credits too, with Orion Engineered Products pricing today. With margins guiding with a two-handle and rated at BB/Ba2, pricing is the deciding factor for most buysiders, who are thinking at a portfolio-level about whether they can take this rarer credit amongst the usual sea of B2s. Elsewhere, some buysiders are starry-eyed at the rapid Covid recovery on this “safe, familiar” name, while others are green around the gills in the face of ongoing environmental regulation after emission reduction upgrades at the company’s American facilities look to dampen Orion’s H2 outlook.

Buysiders are also waiting with bated breath to see where pricing will end up on Medline, one of the year’s biggest deals, and the fourth largest LBO since the crisis. Said one buysider: “It’s a pretty defensive business, and it's a pretty large business too. These large deals set the tone for the market.”

Currently talked with a three-handle, a blue-chip consortium of Carlyle, Blackstone and H&F is buying the business, which boasts revenue of $17.5bn for more than $30bn. The B1-rated name is expected to be bought with an equity cheque of around 50%, according to Bloomberg.

In another major deal MasMovil is expected to launch on Monday 27 September and has set a lender call for that date, according to LPC. A €800m TLB will support the acquisition of Basque competitor Euskaltel, which comes at a cost of €1.965bn. But despite major deals like Medline and MasMovil coming to market, strong appetite for primary loans has allowed almost greedy upsizing, even for smaller businesses.

Howden, an insurance business raising financing to support an acquisition of Align Financial Holdings and pay down revolver borrowings, upsized its $415m dollar-denominated tranche to $955m. This was even despite a second buysider telling 9fin relative value here wasn’t fantastic. The OID on both loans also tightened in syndication.

The OID on the dollar tranche of a Paysafe loan also tightened in syndication, while Stada’s OID tightened on both the euro and sterling portions of its loan. The first buysider said of the pharmaceuticals business: “It’s such a quick syndication and we’re already in the name, so it’s something of a drive-by for us.”

But the true test of appetite in the market this week will be the return of Urbaser. The Platinum-backed business had its €1.63bn pulled with investors citing the market backdrop in July 2021. The complexity of the deal and the fact that the name was recondite in the market as well as the exhaustion proliferating towards the end of summer 2021 left the deal bereft of interest, said one market source, while buysiders complained of a small equity cheque, the sector and the sponsor.

With a smaller tranche of €1.25bn, generous price talk of E+475 bps, a slight bump to the company’s EBITDA figure since it was last in the market, an equity cheque increase from the sponsor, and a somewhat early-mover advantage in this surprisingly slow September will give Urbaser its best shot at a successful syndication.

In other news

• Babilou is out with a €140m fungible add-on to an existing TLB paying E+425 bps, which will go towards the acquisition of competitor Little Giants.
• Cyber security business Exclusive Networks is listing on the Paris Stock Exchange and is out to market with two term loans, a €315m TLB1 and a sterling-denominated TLB2, according to LPC.
  Polygon is also out in the market with two tranches, for its LBO that will see the business sold by Triton Partners to relatively unknown AEA Investors.

High Yield Secondary

Across HY, we saw an overall softening this week, as instruments traded down an average of -0.21 pts (17% +0.28 | 79% -0.33 pts). All Industries were in the red, with Real Estate (-0.73 pts), Consumer Discretionary (-0.28 pts), and Consumer Staples (-0.28 pts) dropping furthest. In European domiciled HY credit funds, Euro (-$424m) and Global (-$250m) HY funds saw medium outflows, while US funds managed to capture a small inflow (+$190m).

German real estate contagion appears to have caught on amid other European issuers. Adler Group, Adler Real Estate, and Corestate all tracked losses of between -1 pts and -4 pts across various instruments, as news emerged of a German parliamentary inquiry relating to the merger of ADO Properties, ADLER Real Estate AG, and Consus Real Estate AG back in 2020. Peers Vivion Investments traded down -2.5 pts on the week. SIGNA Development 2026s were -1.6 pts softer, and Via Celere’s 2026s also dropped -0.5 pts, among many others.

In single names, Konsberg Automotive SSNs due 2025 moved down on reduced guidance - FY 2021 revenue targets are now expected to be €1,100m (from €1,130m) with Adjusted EBIT of €50m (from €60m). Shortages of semiconductors, as well as higher prices for raw materials are blamed.

Fellow automotive supplier Standard Profil also fared poorly, losing almost -3.5 pts on it’s SSNs due 2026. On Wednesday S&P assigned the group a negative outlook (B-), raising the change of a triple-hook rating, citing the industry's on-going semiconductor shortage.

Leveraged Loans Secondary

The secondary market had slightly droopy performance this week, with all sectors (save consumer staples and energy) falling, albeit by less than a point on average.