Market Wrap

LevFin Wrap - Risk-off on War in the West

Huw Simpson's avatar
Michal Skypala's avatar
  1. Huw Simpson
  2. +Michal Skypala
8 min read

High Yield Primary

It’s no surprise we’ve had another week without new primary activity. As Russian forces move into the outskirts of Kyiv, market participants digest the implications of “the biggest war in Europe since 1945”. 

It’s been 18-days since the last deal announcement, and there’s little sign of fresh activity in the short term. Over the past five years, on average, we’ve seen a EUR or GBP deal hit the screens every ~1.6 days. But, aside from traditional gaps over the Christmas and August breaks, new supply has now been on pause for the longest time-period since Covid-19.

US markets weren’t as quiet however, and on Wednesday social media platform Twitter managed to price an 8Y $1,000m SUN offering at the wide end of 4.875-5.00% PT, to be used for general corporate purposes. The group entered into an accelerated share repurchase agreement on 10 February, and prepaid dealers the $2,000m purchase price. On 1 January, the group closed the sale of MoPub to AppLovin Corp for $1,050m – marking a strategic shift toward performance-based ads, SMBs and commerce.

High Yield Secondary

While the lack of new supply might temper the effects of fund-outflows on Secondary, prices have continued to fall throughout the week. This crystalised on Thursday following Russia’s invasion. Instruments we track traded down an average of -0.81 pts, and 89% registering a loss. This builds on a -0.15 pts loss last week, and -3 pts over the last month. 

The volatility is well mapped on the iTraxx Crossover index, which opened today at 370 bps (hit 390 bps at the wides), driven from 346 bps on Monday, and 331 bps last Friday. In fund flows, Bank of America Global/EPRA Research reports continued outflows across Global (-$352m) and Euro (-$444m) funds, with US-focused (-$668m) the greatest underperformers. By Industry, Energy (-0.27 pts) and Utilities (-0.64 pts) managed the smallest declines, while Healthcare (-0.94 pts) and Real Estate (-1.03 pts) tracked larger losses.

Within Real Estate, while both Adler Group (+3.4 pts) and Adler RE (+1.3 pts) registered gains, Aggregate Holdings SUNs due 2025 were down -12.5 pts to below 50. This came about on news that Vonovia had seized a 20.5% (of Aggregate's overall 26.6%) stake in Adler – after Aggregate failed to service a margin loan provided by Vonovia, which had been pledged as collateral. Read our full coverage, and implications of a contested cross-default here.

Elsewhere, International Airlines Group – owner of BA and Vueling among other airlines – is reported to be considering asset sales to combat cash burn while international travel rates remain sluggish. Full year results today show passenger numbers still -67% versus 2019, a pre-exceptional operating loss of almost €3bn – and gross debt now stands at almost €20bn. The group’s 2028 1.125% SUNs traded down around -5 pts this week, now seen at ~92.


With the rapidly developing crisis, we put together some initial thoughts on leveraged finance names that could likely be affected. If you are not a client but would like to request a copy, please complete your details here.

On financial institutions, partial sanctions are already in place for Sberbank (which lends to non-Russian HY issuers including FrigolassEnergo-ProNostrum Oil & Gas and RCS & RDS (Digi)) and VTB Bank (lends to Signa Development and United Group). Also of interest is Russian involvement in European credit as a Sponsor, most significantly from LetterOne, the investment vehicle of oligarch Mikhail Fridman. While Fridman was not sanctioned after the annexation of Crimea, and hasn’t been (so far) in connection with the current invasion, any comprehensive attempt to sanction the entire Russian financial system would inevitably include Alfa-Bank – which Fridman founded and controls. LetterOne is a cornerstone investor or owner in several businesses, including VeonDIAWintershall Dea, and Holland & Barrett.

Single-name credits most exposed include the German pharma group Stada, where Russia accounted for 14% of its 2020 sales. Operating two main manufacturing facilities in Russia, and one in Ukraine, Stada notes that unlike many sanction regimes, the Ukranian regime does not exempt pharmaceutical products, which has prevented it from selling Russian-made products into Ukraine since 2014. The 2025 5.00% SUNs have dropped around -4 pts on the week, to ~92.

Elsewhere, packaging firms CanpackGuala Closures, and glass container producer Frigoglass all have material exposure, citing aluminium price, sales volume, and staffing concerns respectively. 

Finland-based steel producer Outokumpu issued a PR to reassure investors over its limited exposure to both Ukraine and Russia, but suggested longer term procurement of raw materials and energy gases could impact the group. 

Leveraged Loans Primary

Broader market turmoil induced by Russian military aggression against Ukraine hasn’t left European leveraged loans primary unscathed, and it’s no surprise that so far not a single issuer is planning to brave the market next week. 

“It’s not a market shutdown, but issuers that necessarily don’t have to print will stay away from the market now,” said a head syndicate banker. “The price impact will be over the short term, but that is nothing new as we have seen in every crisis in the past 15 years. We expect a lot of scrutiny for deals with significant Russian or Ukrainian ties or exposure, but that is not a structural thing for the market,” they add. 

Primary has been already thinning out last week and as 9fin reported banks are rethinking their approach to the market. Some have seen their forward LBO pipelines more than halve since last autumn, as the loan universe forces sponsors to reevaluate pricing and terms, to take refi’s off the table, and recut capital structures for more challenging offerings. 

In an increasingly volatile execution two outstanding deals have struggled to move through syndication as the initial price talk suddenly became outdated. 

Veonet, the German network of ophthalmology clinics postponed its €795m seven-year term loan B due to market softness driven by the Russian invasion of Ukraine. Buysiders polled by 9fin welcomed this development with a sigh of relief since the proposed term sheet could have laid claim to the title for the “worst documentation ever seen”. The wishful thinking is that if Veonet ever comes back to the market, its terms might be already softened after a laundry list of complaints received in the initial syndication.

French thermal transfer ribbon manufacturer ARMOR-IIMAK made it over the finish line amid market wobbles. Leads sweetened the talk on its €450m TLB (B2/B+) to E+500 bps and 98.0 from E+450 bps and 99.00-99.50 initial guidance. New commitments were due Friday (25 February) at 3.30pm London time. The deal priced in line with revised talk at E+500 bps and a 98.0 OID, with €40m ($-equiv.) carved out.

Strongly positioned with relatively steady end markets, the company impressed buysiders with embedded customer relationships and realistic synergies with newly acquired IIMAK. Tempering this, buysiders raised the unusual move to have the sponsor as a minority shareholder, keeping management, who are not as well known to leveraged finance investors, as the controlling party. Read more in 9fin’s preview of the credit. 

Leveraged Loans Secondary

Investors' eyes were glued to their screen this week as funds were monitoring how much of a broader market sell-off will hurt their loan portfolio. Secondary market prices softened the most on Tuesday morning, down by 2.25-points on some names, according to 9fin data, showing that loans had the Russian invasion risk priced in, and that the asset class could be a safe haven compared to wider market sell-off. 

Execution in secondary was minimal as the majority of investors wait to see where the market goes, and continue to assess exposure to Russian and Ukrainian markets for the potential impacts of sanctions. 

“Overall, the market turned down 1-2 points, not great across the board,” said one CLO portfolio manager. “We don't know yet if that’s a reaction to what is going on, or if it’s the start of a market gradually softening down. We’re waiting it out, we are not going to buy or sell 50m,” they add. 

In single name moves, the largest fall on euro-denominated loans was felt by French funeral services provider OGF who saw its €816m TLB drop almost three points from 96.1 to 93.3 on the week. The €875m TLB from French nursing home chain Colisee’ lost 2 points, falling from 98 to 96. As 9fin reported, the whole French care home sector has been in relative disarray after reports arose with allegations ranging from negligence to criminality by multiple providers. 

Dutch margarine producer Upfield (Flora Foods) saw its €2bn TLB fall 1.2 points to 92.8 on Thursday, having dropped as low as 91.9 during the week. The £710.4m sterling TLB traded down 1.8 points to 91.6 since last Friday. The PLN 2bn TLB meanwhile fell over 6 points to 85.8.

The €600m TLB from Kloeckner Pentaplast also traded down from a Monday high of 95, now last seen at 93, while UK retailer Holland & Barrett was down from two points this week to 85.4 on its €418.9m TLB – the £450m sterling TLB tranche fell from 85.2 to 83.9. Third largest fall came from Swedish mattress manufacturer Hilding Anders, which has Russian manufacturing operations, and saw its €500m TLB down 1.6 points to 83.5 at the end of the week. 

“In broader volatility, what you are selling off is low coupon with high maturity, [those] names are getting whacked, so packaging or TMT is one of them. It is a stable sector. Ukraine and Russia could be an underlying layer with energy prices soaring but that will add to it later. We are not seeing it yet,” said an analyst at a second CLO. Glass manufacturers are also exposed as for them the key is energy costs, so spiking oil prices can put them under pressure, they add. 

Broadly speaking, all L1 industries were faced with a downturn from over 0.1-points on materials to over 0.4-points for consumer staples. 


LevFin Wrap is published weekly for subscribers and usually includes our Forward Pipeline. If you would like a copy, please complete your details here.

You can also catch up on the week's event in leveraged finance on Cloud 9fin. In the latest edition, the team discuss voting caps, the tension created by private equity ownership in the social care sector and the latest from Schur Flexible. Listen here.

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