LevFin Wrap - United we stand, the theatre of eDreams
Huw Simpson
+Kat Hidalgo
•10 min read
High Yield Primary
We tracked a strong Telco theme in last week’s wrap, which rolled into Monday with the launch of United Group’s acquisition financing for Greek competitor Wind Hellas. The dual tranche deal was initially structured as €580m SSNs due 2030 and €400m SSFRNs due 2029 (B2/B), and will take out bridge financing for the target’s €975m EV (8.1x ‘EBITDAaL’).
It appears the IPTs sent out at launch (5% area (fxd) and High 4s) looked a little rich, and price talk was forced to shuffle wider to the 5.375% area and E+500 bps on Wednesday. Happily, the group managed to rein back pricing on final terms, flipping €80m to the floating tranche – which priced at E+487.5 without an OID – while landing the fixeds at 5.25%. As we’ve discussed, a rising rate environment, and the strong technical bid from CLOs should provide ample demand for floating rate products.
The wobble is unlikely a sign of wider concerns, even after VodafoneZiggo’s EUR SSNs only managed to price in-line with IPTs last week (last seen at 98.8). We haven’t had any serious deal flow so far this year – instead it probably reflects over-ambitious pricing targets, and some credit specific risks. And while there have been sizable outflows across Global HY (-$570m) and US HY (-$307m), Euro-focused funds have remained relatively unscathed, with a small +$71m inflow (EPFR Global, BofA Global Research). The iTraxx crossover also held fairly tight, despite bouncing around in the 249-257 bps range this week; it was last seen at 253 bps this morning.
If we return to the bigger supply picture, rates are looming and inflation is expected to peak by mid-year, which might suggest the sooner the better for refinancing names. Meanwhile, with ever-present PE firepower still to deploy, are we expecting overweight floating or loan portions in buyout financing?
A Little Sweetener
The two other main deals of the week – Tereos and Alsea – managed a cleaner bookbuild, setting initial expectations high, and tightening on strong traction.
Monday saw Tereos launch €300m Senior Notes due 2027 (B+/B+) to fund a part redemption of its existing 2023s, pushing out average maturities in a leverage neutral transaction. Among several products, the French group produces sugar and ethanol, and is the second largest player globally in terms of sugar volumes.
Historically vulnerable to swings in sugar prices (particularly the lows seen after the end of European quotas in 2017), the company saw performance decline, and yields on the 2023 SUNs peak at 20% in 2019 – widening to over 30% in the first months of the pandemic. Prices have since stabilized, up 45% from April-2021. The company cites an ability to alter the production output mix with minimal cost, switching in response to market dynamics, offering some hedge to commodity price fluctuations.
Upsizing €50m, the deal finalised on Wednesday at 4.75% after tightening successively from IPTs in the 5% area, and price talk in the 4.875% area.
Following a similar playbook, Mexican restaurant operator Alsea was out debuting €275m Senior Notes due 2027 (B1/BB-). Books were in excess of €500m on IPTs of High 5s, and more than €650m on guidance in the 5.75% area. Revised guidance trimmed to 5.625%, and the deal upsized to €300m on books of more than €800m. On Thursday, the deal finally priced at 5.50% – offering a premium over similarly rated credits thanks to it’s EM flavour.
The group operates franchises for well-known international brands like Starbucks, Domino’s and Burger King – generating around half its revenues in Mexico, a third in Europe, and the remainder in South America.
And finally, we tracked two Friday deals offered ahead of any new supply expected next week.
Ceramtec launched the bond portion of its €3,719m (13.9x EBITDA) buyout financing, which will roll BC Partners existing ownership into fund XI, and replace previous owners PSP Investments and Ontario Teachers with CPP Investments. As you might expect, legals on the deal contained sponsor favourable terms throughout, including unlimited use of portability below 6.75x (opening leverage 7.1x) and broad uncapped EBITDA addbacks. Clients can read our Credit QuickTake here.
Spanish travel company eDreams ODIGEO mandated €375m Senior Secured Notes due 2027, which together with a successful €75m capital raise will redeem the outstanding 2023s. The Global Investor Call is set for 10am on Monday.
High Yield Secondary
Secondary was more or less flat on the week, losing just -0.06 pts on average (33% +0.35 pts | 63% -0.24 pts). Energy was the only industry in positive territory, gaining +0.15 pts, while Healthcare (-0.10 pts) and Real Estate (-0.11 pts) tracked small losses. Communication services slipped another -0.16 pts, adding to last week's -0.35 pts decline – this was due to further softening among Telco names (-0.26 pts).
In single name moves, UK discount retailer Matalan’s 2nd Lien notes recovered almost 3 pts to the mid-70s (the SSNs were last seen at ~97) – as we discuss in the Friday Workout, prospects of a refi may be eeking closer. Lottomatica’sPIK Toggles have risen +2.6 pts, now trading above par for the first time since issuance, and Juventas FC’s2024s were up +2.5 pts. The football club are currently fifth in Serie A (an improvement on not so long ago), but far behind fellow HY issuer Inter Milan, who are eleven points clear at the top of the table. As reported, Inter were quick to confirm refinancing rumours on their Q1 (29 November) conference call, aiming for Q1 2022. This week it was revealed Goldman Sachs have been hired, with a similar sized bond to the existing, expected to launch in the coming weeks.
At the other end, Vivion Investments saw their 2024 and 2025 SUNs trade down -1.9 pts and 2.3 pts respectively – as Bloomberg reports, Citi warns bondholders on Vivion’s connection with Adler.
Elsewhere, Polish logistics platform InPost failed to deliver on parcel volumes when it announced weaker than expected growth last Friday. The €490m SUNs traded down -1.7 pts on the week, currently seen at ~96.6. We’ve previously written about speculation that the group could be acquired by Amazon in the near future (note the deal is portable, a rarity for listed businesses).
Leveraged Loans Primary
Though business isn’t quite as usual just yet, with most analysts at home due to Omicron-related working restrictions and some still returning from holiday, the leveraged loans machine has certainly started to whir again. But with negative news flow from rates, the buy side is somewhat mixed on the market, both happy to be back but also underwhelmed by what’s available.
Unlike in some previous years after a Christmas or summer break, where a first credit sets the tone for the market, loans have been varied this week. As one buysider noted, credits are coming to market at a reasonable price, but quality overall is mixed.
Cleaning up
Some credits have come back with a bang, like Micro Focus. Likely hoping to take advantage of its reputation as a solid, Covid-19 safe technology firm, albeit with declining revenues, it allowed analysts just three days between its lender presentation and its commitment date. Despite this, sources close to the deal suggest it has seen large orders from accounts that are new to the credit. Clients can see our loan preview here.
The leverage-neutral transaction will extend the weighted average maturity of the capital structure from 2.7 years to 3.6 years, as the business hopes to fix up its capital structure and repay or partially repay some historic instruments.
The $1.6bn (equiv.) dual-tranche offering was initially structured as €442m and $1.1bn, before pricing (E+400 bps, 99.5 OID) emerged at the tight end of guidance on the euros, which upsized to €750m. The respective dollar tranche was cut down to $750m, with final pricing (S+CSA+400, 99 OID) at the wide end of talk. Commitments were due yesterday, 13 January.
Perhaps as the second harbinger of a trend in listed refis, Spain-listed swimming pool services firm Fluidra is also coming to market to clean up its debt structure. It will more than triple the size of its revolver to €450m from €130m and pay down an asset-based facility, which was drawn by €167m, as well as a €705m TLB, removing an AUD75m tranche, off the back of strong Covid-19 performance.
Nevertheless, investors will be questioning whether Fluidra can keep up its momentum — or whether it is top-ticking the market with the refi. Its double-B rating suggests it will likely be offering little documentary protection and will shoot for a tight spread, which has already blown two buysiders out of its waters, saying that it simply does not pay enough to warrant further research.
Mad for add-ons
Most other credits are dipping their toes into the market with an add-on or a bolt-on acquisition play.
Commitments were due yesterday for a £75m Iris Software add-on, the Hg-owned software giant, and also looking for a €205m add-on is Biscuit International. OIDs look particularly attractive for these two, with Iris offering a 99.125 OID and Biscuit International chomping at the biscuit with talk at 97.5-97.75.
Arxada, previously known as Lonza Specialty Ingredients, is also joining the add-on fray, but with much more substantial TLBs to support the acquisition of Troy Corporation and Enviro Tech Chemical Services.
Even the only classic LBO transaction currently in the market has its own little twist. In a fund-to-fund transfer, BC Partners will be buying its existing asset, Ceramtec, switching out two Canadian pension funds for another. The business is raising €1.43bn.
The market familiar ceramic parts manufacturer has fired buysiders up with its long-term stability, strong cash generation and market share. Cracks show, however, with the deal’s high leverage, weaker industrial segment and aggressive docs. And with the market still quiet post-Christmas, buysiders worry Ceramtec will be able to push through with terms intact – and with pricing wound tighter. Clients can see our loan preview here.
Also varied are our lead bookrunners for this week’s deals. No bank is yet pulling ahead, with leveraged loan majors JP Morgan, Deutsche Bank, BNP Paribas and Credit Suisse each with a deal of their own (with MicroFocus, Arxada, Biscuit International and Iris Software, respectively.) BAML, keeping up momentum, is in the market with Ceramtec, while lesser known BBVA is leading on Fluidra.
Leveraged Loans Secondary
After last week’s primary quiet, when the buy side had time to brush up on pre-Christmas admin and take a long hard look at portfolios, analysts agree primary is now the focal point again, and they’re pleased. “You can only look at secondary for so long,” said a second buysider.
Perhaps in response, secondary this week lies very flat, with almost all industries moving against last week by less than a third of a point.
Winners and losers
The week’s biggest faller in the secondary market was Polynt-Reichold, which lost 1.5 pts on both its $60m and €485m tranches to 99. The composite resins supplier has been levelling out, but in a downward direction since its Q3 results came out in late December. The company reported heavy exposure to inflation and raw materials as volumes were down by 6% from the third quarter of 2020, and the company’s “ability to serve the full demand from our customers in the Americas and in Europe” was affected.
GTT Communications’€750m TLB also notably lost 1.1 pts this week falling to 91.9, despite an upward move of 8.8 pts over the month from 7 December to 7 January 2022. The business’ loans rose after a Bankruptcy Court for the Southern District of New York approved the company’s prepackaged restructuring plan. No major news has emerged since the restructuring was agreed in November, according toReuters.
A new entrant in our list of secondary winners, Permira-backed campsite and mobile home operator Vacalians’ €330m and €195m TLBs both rose a whopping 5.3 pts week on week to 97.5. No recent news has been announced and Permira was not immediately available for comment, though the buyside has suggested that analysts are looking at reopening opportunities as a theme and that this could also be connected to the relaxation of travel rules in France.
9fin's LevFin Wrap is published weekly to subscribers. It includes our Forward Pipeline. If you would like a copy of our Forward Pipeline, please complete your details here.
Clients can also access loan previews referenced in this report. Please complete your details here if you would like a copy of our Micro Focus or Ceramtec loan previews.
