High Yield Primary

Despite the reopening of EHY by Miller Homes last week, primary remains hesitant. Biofarma launched into the holiday shortened week, followed by a mirror note tap from Europcar and CVC’s LBO financing for LaLiga emerging from the tunnel on Thursday. Sentiment turned sour late in the week, with an equity rout in the US and a warning from the BoE that the UK will slide into recession this year, with inflation expected to rise to over 10%.

Rate rises happened as expected across both sides of the Atlantic. UK base rates were raised 25 bps to 1% (although three members of the MPC voted for a 50 bps hike), and the FOMC increased rates 50 bps, with similar rises on the table for the next two meetings. A 75 bps hike – given an outside chance by some analysts – was not actively considered. This provoked a decent rally in US markets, but the relief trade lasted less than 24-hours.

The iTraxx Crossover widened from 418 bps to 453 bps at Thursday’s close, 65 bps wider over the past fortnight. Given the gloomy outlook, Bank of America HY is now predicting just €70bn of Euro HY issuance for the year – for comparison, in 2021 we tracked over €120bn.

Biofarma arrives

Widely ticketed as a potential high yield re-opener, on Tuesday Biofarma announced acquisition financing for Ardian’s majority takeover – with the Scarpa family founders retaining a 30.5% stake. Together with €345m Senior Secured FRNs due 2029, the €877.7m equity contribution includes a €37.5m vendor loan, and €106m PIYW PIK Toggle Notes pre-placed with Tikehau Capital and Goldman Sachs Asset Management.

Running a buy-and-build strategy, the Italian CDMO was merged with Nutrilinea in 2019 following bolt-ons of Pharcoterm, Apharm and Claire. The latest move was the acquisition of a 75% stake in IHS, which specialises in the R&D of medical devices, and is expected to increase FY 21 pro forma EBITDA by €24.7m to €64m.

Price talk emerged on Friday afternoon at E+575 bps, with an OID of 96-97 (wpir), and two doc changes – the removal of portability, and reduction of the EBITDA adjustments cap to 20% within 24 months (from 25%). Books closed today at 3.30pm UKT.

LaLiga in play

Set up in 1984, LaLiga represents the 42 clubs which make up the first and second division leagues in Spanish professional football. Responsible for organising and promoting competitions, LaLiga then sells the TV and media rights (94% of FY 2021 revenues) as well as sponsorship and licensing agreements, before distributing the proceeds to clubs. Club participation is voluntary, but of the 42, 38 have so far agreed, with provisions made to allow future entrants. Of the four who haven’t agreed, notable absentees include Barcelona and Real Madrid, as well as Athletic Bilbao and Unión Deportiva Ibiza.

The deal structure is pretty remarkable – via its investment vehicle Loarre, CVC is paying ~€2bn to LaLiga as part of the ‘Impulso Investment’, where clubs will use proceeds to modernise infrastructure and invest in growth, as well as repaying debt and funding player expenses. Alongside the €850m Senior Secured Notes (fixed and floating), CVC is investing cash equity of €256.7m, and deferred equity of €964.8m. In return, Loarre will receive ~8.2% of LaLiga’s profits until the 2071 football season, and an 8.2% dividend from LGI cash flows.

The GIC kicked off today, with meetings planned through to Wednesday, so we’ve got no indication of pricing on the new notes. However, of the €44.8m cash held by the issuer, €29.8m has been earmarked “to be used by the Issuer to make payments into the Debt Service Reserve Account and to replenish cash at bank and in hand”. With the €850m principal, and the account set up to contain at least six months interest, this could roughly imply interest costs of ~7%.

Described by our legals team as ‘very bespoke’, the covenant package is designed with elements of a PIK HoldCo structure, incorporating a locked cash box and interest cover requirements. Including a ‘myriad of additional novel drafting’ to address the unique structure, our Legals QuickTake can be read in full here by clients. If you are not a client, please complete your details here to request the LaLiga report package.

Van in the Mirror

On Thursday we also saw a €150m (min) tap of Europcar’s €500m 3.00% Senior Secured Mirror Notes due 2026. With the busy summer period fast approaching, the funds raised will be used for fleet financing, as the group hopes to capture increasing demand.

The Volkswagen-led tender offer of €0.50 a share is still outstanding, and the consortium filed for EU antitrust clearance in mid-April. Europcar has opted to extend the longstop date to the end of June, and closing is expected this quarter. As in the 2021 deal, VW are permitted holders, so no 101 put right with the change of control – a concept we explore in our new Educational series.

The first ‘mobility service company’ to have emissions targets approved by the SBTi, the deal includes two 12.5 bps coupon step-ups if Europcar fails to meet GHG targets and a 20% green fleet by 2024.

High Yield Secondary

It’s been more of the same in Secondary, as bonds dropped again, this time an average of -1.13 pts as high beta names traded off towards the end of the week (10% +0.55 pts | 88% -1.34 pts). By sector, Financials (-0.81 pts) and Utilities (-0.82 pts) marked the smallest losses, ranging to larger moves across Consumer Discretionary (-1.15 pts), Healthcare (-1.25 pts), Communication Services (-1.45 pts) and single-name impacts on Real Estate (-2.25 pts). Year-to-date, the average drop across all sectors is an astonishing -8.65 pts.

The big news of the week, Adler Group published sort-of audited accounts on Saturday afternoon, the deadline for full-year reports. KPMG had issued a disclaimer of opinion, but Adler Chairman Dr Kirsten stated “there was an audit... we have audited results” – Viceroy disagreed. Trading down heavily on Monday, the bonds have since recovered slightly, although instruments across the debt stack are down -9.3 pts on average versus last Friday.

Dropping into triple hook territory, S&P downgraded the German property group to CCC on increased refinancing concerns, while also downgrading Standard Profil to CCC+ due to delayed positive free cash flows. Family favourite Boparan fared little better, as Moody’s cut its CFR to Caa1, citing increased challenges to improving its weak credit metrics. Standard Profil’s 2026 SSNs are down -3 pts to ~66, and Boparan’s 2025 SSNs down -5 pts to ~71.

One of the few risers, Raffinerie Heide announced that a recovery in refining margins since mid-March has buoyed liquidity, allowing the single-asset refinery to rethink the planned refinancing of its €250m SSNs due December 2022. The good news has allowed Heide “to re-assess the optimal structure, scope, type and appropriate size of any refinancing transaction” – the notes are up +1.7 pts on the week, currently sitting at ~95.

We also revisited Twitter, as pricing on the existing 2027 (~99.2) and 2030 (~102.2) SUNs suggests some interesting game theory could be at play. There are a number of possible scenarios, ranging from the 101 put, to a make-whole or simply retaining the debt in the new structure – read our piece here.

Leveraged Loans Primary

The European loan market appears quiet, but beneath seemingly calm waters, is the long-awaited primary storm brewing? It was yet another week at 9fin awaiting the big anticipated post-Easter relaunch, with just one deal emerging, and that was earlier today. Rumours are floating around of multiple issuers ready to tap the market but it seems quite few of them are still waiting at the dockside, squeamish about sailing into troubled waters.

“A lot of deals are being prepped for launch, [but] sometimes processes take more time,” said one sellside banker. Some market uncertainty is still left and price discovery is not finished but gradual pricings are giving sponsors an idea of what cost of capital they can get in the open syndicated market, he said

“We have plenty of mandates that are just not ready to be launched, because there is still work to be done. I’ve not heard of anything being put on hold, we will see quite a few deals before the summer,” the banker added.

Pricing continues to push downwards, with two bankers putting the likely range of single-B credits to come to market at E+425-475 bps, depending on single name idiosyncrasies and the level of exposure to inflationary pressures. Nevertheless, the market is holding steady on the trickle of deals that are coming through, and far from departing from 4-handle territory.

Although the brewing time has been longer than anticipated, a second banker is finally willing to admit that mammoth deals such as Unilever Tea and Morrisons will come “in a few weeks.”

Meanwhile, for the first time since Valentine’s day, there were more bond issuers than loan issuers in the market this week, but issuance volume is still far greater in loans. This is mostly down to Refresco’s €3.4bn-equivalent TLBs, which priced yesterday.

The seven-year first lien term loan was split between a €1.53bn euro piece, a €1.53bn-equivalent US dollar-denominated tranche and a €340m-equivalent Sterling-denominated tranche. The Euro tranche reverse flexed to E+425 bps from 450 bps, while the US dollar loan landed at the tight end of price talk of 425-450 bps over SOFR. Both OIDs finalised at 99, tightening from 98-98.5 at launch.The sterling piece priced S+525 bps, which was unchanged from launch while the OID landed at 98, the wide end of price talk at 98-98.5. 9fin previewed sentiment on the deal last week.

Optigroup is the next LBO to land on buysiders’ desks. The Swedish distributor of business essentials has launched a €515m Term Loan B with a €50m fungible delayed draw tranche. The transaction is funding the merger with peer Hygas – also owned by FSN Capital. The new sponsor acquired Optigroup from Triton and Altor last December.

Both B2/B/B+ tranches are to be allocated as a pro rata strip with talk at E+525 bps and a hefty OID discount of 94-95. The syndication process is being run by JPMorgan and Jefferies with small meetings starting on Monday (9 May) and commitments due on 17 May.

“Looking at where that deal launched, it is very wide, so I wouldn’t be surprised if that keeps some sponsors from [entering] the market,” said one buysider.

A second buysider added that the leads are probably starting with wider talk as the company has various business lines with flat growth, an unknown sponsor, and a high number of spot contracts with mostly-SME customers. Put this all together and the credit risk might be elevated. Starting way up with a 5-handle and a generous OID might give the deal more headroom to tighten in the syndication, as all deals have done so post-Easter, he suggested.

Elsewhere, AVS Group, now known as the Work Zone Safety Group, is the latest in a string of add-ons brought to market and is the only other loan issuer in general syndication. The €100m TLB will be fungible with previous term loans to pay E+375 bps. The current TLB is offered at a 97-97.5 OID currently, while the company’s most recent add-on, a €120m TLB, priced at 99.25 in August 2021. Commitments are due 10 May for Triton’s buy-and-build platform.

Work Zone Safety Group joins a number of issuers looking for add-ons since the market began opening in March. The list includes Barentz with a €100m TLB, ION Trading with a €125m privately placed instrument, and Beauparc, with a €90m TLB.

Leveraged Loans Secondary

The European loan secondary market was mostly muted with no BWICs for a fourth week in a row. However, on Thursday (5 May) afternoon a gradual sell-off started across the board. Loans followed in sympathy with wider jitters mainly from equity markets while the Bank of England rate hike (sprinkled with a recession) warning also weighed on prices.

“It’s pretty red everywhere in Europe again. It did grind slowly upwards for a couple of weeks, but we are going back down. Frankly, we didn’t start [the selloff] from a high level – where primary is launching now is not at tight levels,” said the first buysider.

Until now, the recent absence of primary had kept secondary prices firm as some CLOs were still ramping up their portfolios and therefore had to tap the secondary. But the loan market is not immune to wider market moves.

“The market is not very strong, there are not a lot of bids out there now and liquidity is limited,” said the first buysider.

As of Thursday, the biggest decliners in the week were Philips Domestic Appliances (-2.5 pts), German elevator business Wittur (-2.4 pts) and UK cinema operator Vue (-2.3 pts). German pharma business Stada, French lab network BioGroup and Dutch chemical company Nobian make up the remaining names which fell more than -2 pts in the past week.

Friday morning has been a waiting game with the market in sell mode, and trading desks only marking offer prices with no bids. Most were looking to the US open to see if the sell-off continues or if investors will take a weekend breather.

“[Changing] Rates expectations from the ECB are also keeping the market in waiting mode and loans are holding much better than bonds,” added the first banker. The Financial Times reported today that momentum is building at the central bank to raise interest rates in coming months.

On average, every industry was in the red versus last week with the biggest decline (close to -0.4 pts) in Communication Services followed by Healthcare with an almost -0.3 pts fall.