Market Wrap

LevFin Wrap - Taking it to the Thermamex, EHY hots up

Huw Simpson's avatar
Laura Thompson's avatar
  1. Huw Simpson
  2. +Laura Thompson
7 min read

High Yield Primary

In its first rate rise since 2011, the ECB this week delivered a 50 bps rate hike, above expectations of a signalled 25 bps move. This, together with the unveiling of a much anticipated ‘anti-fragmentation’ device (the TPI), is angled at tackling inflation across the bloc, while lending support to peripherals struggling with high borrowing costs. Concerns remain however that the TPI could be of little use to Italy, where despite BTP10/BUND spreads near recent highs at ~233 bps, the potential for a new populist government may strain certain eligibility conditions. These include, “fiscal sustainability”, and “sound and sustainable macroeconomic policies”.

And to much relief, Russian gas supplies via the Nord Stream 1 pipeline have resumed following scheduled maintenance – though reduced to ~40% of capacity. While this is certainly positive for Europe, it’s hard to know what it means for future volumes. Supply is still limited, there is little spare capacity from other gas-exporters, and gas prices remain at elevated levels.

Source Dutch TTF Gas (TGU22)

Within Credit markets, indicators may finally be turning positive. The iTraxx retreated back to 536 bps on Thursday’s close, 90 bps inside the recent peak – while outflows continue to ease. It’s worth noting however, that given the indices’ broader use as a general credit hedge, some of this may simply reflect short covering.

As we discuss below, HY instruments gained an average of +1.46 pts, and on Thursday’s close Lev Loan instruments were up +0.57 pts on the week. Recent issues like BestSecret have performed well (SS FRNs traded up to 89.4, from an 85 OID) and even tapped for an additional €35m, while UK specialty pharma group Theramex reverse flexed from PT of 92.5-93.5 (and revised PT of 94-94.5) to land at 94.75.

But, liquidity is still a problem, for Europeans in particular. Looking at widening Bid-Ask spreads, you can see below the average for GBP and EUR instruments we track has held at well over a point in recent weeks.

Source:, ICE Pricing Data

Across the pond, US Credit markets are naturally bigger and more liquid – average bid-ask spreads are steady at around 40 bps recently – perhaps creating a greater incentive for European-headquartered businesses to tap dollar markets. This happened with ETC Group and could well be the case for other upcoming transactions.

High Yield Secondary

Average prices in Secondary show a strong gain on the week, up +1.46 pts (87% +1.75 pts | 10% -0.62 pts). All Industries were up, with Healthcare (+2.01 pts), Communication Services (+1.82 pts) and Consumer Discretionary (+1.61 pts) the best performers, and Utilities (+1.10 pts), Energy (+0.88 pts) and Financials (+0.40 pts) at the lower end. By Currency, EUR denominated debt outperformed, up +1.63 pts on average, followed by USD (+1.40 pts) and GBP (+0.98 pts).

According to data from BofA and EPRA Global, Global HY funds continued to see sizable outflows (-$722m), but importantly both US HY (-$253m) and Euro HY (-$294m) outflows are holding at lower levels.

Alongside the broad gains made across the market (225 tranches gained over +3 pts, and 456 gained more than +2 pts), there were several large single-name moves.

In Aston’s slipstreamMcLaren this week confirmed a new £125m equity commitment from shareholders. Funds from an initial £80m tranche of convertible pref shares are already received, and will support “growth plans”. This was good news for holders of the $620m 7.50% SSNs due 2026, which jumped nearly +13 pts to 87. Elsewhere, the Issa Brothers’ EG Group agreed a deal to become an official partner of the McLaren F1 team for the French 2022 Grand Prix.

Similarly, US cruise operator Carnival announced a new common stock offering of up to $1bn, and intends to use the proceeds for general corporate purposes, including the upcoming 2023 maturities. The stock has since dropped ~11%, though the 2026 SUNs and 2Ls are up around +8.7 pts and +5.0 pts respectively. Other operators TUI Cruises (2026 SUNs +6.5 pts), Hapag Lloyd (2028 SUNs +3.4 pts) and Stena (2024 SUNs +3.2 pts) were all buoyed by the swell.

We also tracked moves as new quarterly results start to pick up. ‘Innovative flooring’ producer Victoria PLC announced strong results on Tuesday, posting FY LfL revenue growth of +19.2%, which despite a 3.2% slide in EBITDA margins, prompted higher profits and pushed net leverage to 2.7x. The SSNs due 2026 and 2028 were up +6.9 pts and +7.5 pts in response.

Iceland reported a more mixed-bag, with Q4 EBITDA down -3.1% YoY due to supply chain issues including HGV shortages, and leverage unchanged at 4.9x. The group is however “absolutely” looking at bond buy-backs, according to management, which may explain part of the +4.5 pts increase across the 2025 and 2028 SSNs.

Leveraged Loans Primary

European leveraged loans managed to defy the soul-crushing heatwaves this week to show some signs of life, despite buysiders continuing to describe their risk appetite as sparse and liquidity as lacking.

In (hopefully) a good signal for market health, UK-based women’s health pharmaceuticals firm Theramex instead managed to grind its OID tighter to 94.75 (from 92.5 - 93.5 initial guidance) and E+525 bps on an accelerated deadline this week.

“It’s a great sign for the market in general,” said one banker close to the deal. “It’s great to have all cylinders firing the way they used to and hopefully this opens up the way for more successful transactions.”

“I have mixed feelings about the recent transactions that have cleared and what it shows for the market,” said one buysider. “You’d think this could be a moment where weak protections and such things are addressed, but that’s not what it happening at all beyond pricing concessions.”

The €550m TLB backs the firm’s buyout by Carlyle and PAI Partners from previous owners CVC Capital Partners. Buysiders were mostly mild on the credit itself, with conversations instead focused on the deal’s fairly loose docs, “despite this being a lender’s market,” as a second buysider put it, as well as extensive re-working during pre-sounding.

Sponsors acted to head off the docs concerns, though, with a package of changes announced on Thursday morning ahead of commitments. Changes included altering J Crew language, altering the event of default grace period and tightening debt incurrence allowances.

However, buysider concerns on ratio basket tests set at marketed leverage, despite more current figures putting the company’s leverage below that, were left unaddressed. Read our full preview here.

More is coming down the pipeline: listed Amsterdam-based bicycle manufacturer Accell announced it would later come to market with a €700m TLB and a €180m RCF supporting a take-private by a KKR-led consortium of investors at an EV of 14x, according to a company presentation. The financing will be underwritten by ABN AMRO, Goldman Sachs and KKR.

Accell reported a 34% YoY increase in underlying EBIT to €106.6m in FY 2021, with net sales up 6.2% to €1.38bn. Supply chain issues have been a recent speed bump for the company, expected to last into 2023, with Covid lockdowns in China’s Shenzhen manufacturing region further constraining bike component supply. This pushed trade working capital up 33.1% YoY, according to the company.

Elsewhere, France-based telecom equipment manufacturer ETC Group has decided to go to the US market instead, launching a €972.4m-equivalent USD TLB at SOFR+575-600 bps and a 92 OID to support a buyout by Cinven.

“Liquidity on the European side is really low,” a third buysider said. “The CLO supply is a drought, people are playing bearish still and a lot of the names coming up in pre-sounding just aren’t hitting the right note.”

Leveraged Loans Secondary

Secondary markets were again mostly flat, with all sectors floating up an average of less than one point this week, 9fin data shows, bar Communication Services at +1.04 points. Still, markets remain depressed: currently, 24% of euro leveraged loans tracked by 9fin are trading below 90 and 5% below 80.

Belgium airfield lighting group ADB Safegate fell the furthest this week at -5.5 points to 85 on its €285m 2024 TLB, followed by perennial Hilding Anders, which continued its months-long descent, now at just 33 on its €500m 2024 TLB.

The Swedish mattress company is awaiting lender responses to a debt restructuring, with a deadline for responses today. Under the proposed plan, the group’s €562m outstanding debt will be bifurcated with a portion exchanged into a HoldCo PIK. A sale of the European business is due in 2024 with the Russia and Asia business sales timelines to be determined. The proposal comes after refinancing the debt proved impossible given the company’s significant exposure to Russia and an extremely difficult primary market, said sources close to the situation. Read more here.

At the other end, UK cinema chain Vue topped the weekly charts, trading up +5.3 points on its TLB following last week’s news that its lenders had agreed a £1bn restructuring plan involving a debt-for-equity swap to wipe £465m of debt off the books and £75m of additional liquidity.

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