High Yield Primary

Last week we mentioned the recent turn in sentiment, where LevFin underwriters lost patience with a wait-and-see game, and are now running to unload debt despite the risk-off environment. While some new issuers are heading directly to private markets — possibly including Gaming1 — two new loan issuers braved the choppy public scene, launching M&A deals. A feeling that conditions may not improve in a hurry also spurred BestSecret to refinance its upcoming 2023 maturities, paying handsomely for the privilege.

Elsewhere there were plenty of new, scary headlines — European energy (and political) woes, plus a relatively hawkish Fed pushed the Euro to parity with the Dollar (for the first time in 20 years). And reinforced by Wednesday's US 11.3% June CPI print, the US Treasury curve is now at its most inverted since 2000. Front-loading of rate rises continues, and following Canada’s 100 bps hike, investors are increasingly betting on a similar ‘super-sized’ hike from the Fed. Meanwhile in happier news, UK GDP managed a +0.5% gain in May, after April’s -0.2% contraction.

Cut price fashion

The only HY deal in market this week, German off-price fashion retailer BestSecret (fka Schustermann & Borenstein) set its stall on Thursday morning, offering €315m SS FRNs to deal with the upcoming maturity of its €260m 6.25% SSNs due December 2023. A victim of market timing, the members-only retailer revealed PT of E+600 bps with an 85 OID — inline with recent offerings from Manuchar and 888. The deal did price same-day, suggesting heavy pre-marketing or perhaps significant roll from existing investors. With the chunky OID, a three year all-in annual yield of ~11% does look attractive (600 bps, plus 15 pts OID / 3), though prospective buyers might be wary of investing in a cyclical industry ahead of an oncoming recession.

Back in May 2021, we suggested a 5.50% par coupon refinancing could be done, which would have given a two-year breakeven on interest costs — so, not a win for market timing. Interestingly, there’s also a 1% floor, which in light of a current 3M EURIBOR at more or less zero, gives investors an additional bump ahead of ECB rate rises.

We looked at the OID blow-out last week, and although too early to really tell, the discounts on recent deals may have helped offer some stability in Secondary levels — as newer issuances are so far showing more resilience.

Food for thought

There was also news of the impending merger of Dufry-Autogrill, whereby controlling Autogrill shareholders the Benetton family will exchange their 50.3% stake in return for a 20-25% stake in Dufry. A mandatory tender offer for the remaining 49.7% shares is expected to complete by Q2 2023. This is good news for Dufry — more diversification, less leverage, and synergies to increase profitability, but possibly bad news for Autogrill shareholders (excl. Edizione), who felt short changed on the tender price. Read our piece in full here.

High Yield Secondary

After last weeks +0.26 pts gain, average prices retraced slightly, down -0.09 pts (44% +0.60 pts | 53% -0.67 pts). The crossover is again bouncing around in the 600 bps-plus area, climbing steadily this week to 626 bps at Thursdays close. Fund outflows have eased, though still meaningful with -$429m Global-, -$472m US-, and -$211m Euro-focused outflows.

Moves by industry were fairly split, as Real Estate (+0.27 pts), IT (+0.24 pts) and Communication Services (+0.11 pts) made small gains. Energy (-0.32 pts), Financials (-0.33 pts), Materials (-0.34 pts) and Utilities (-0.35 pts) tracked losses.

Despite the continued lumpy outlook, there have been several encouraging single name moves.

Rubis Terminal 2025 SSNs jumped +5.4 pts on news that the existing bonds will be refinanced via new ESG-linked infrastructure debt. The new package will include a €700m 7-year term loan, an €82.5m capex facility and a €30m RCF.

On Thursday reports emerged that Aston Martin would raise new equity capital to deleverage and “strengthen and accelerate long-term growth”. A PR on Friday morning confirmed this, detailing the £653m raise which will bring the Saudi sovereign wealth fund (PIF) onboard as the second largest shareholder. PIF, the Yew Tree Consortium (led by Lawrence Stroll) and Mercedes-Benz AG are to invest c. £335m in total, with an underwritten rights offering to supply the remaining equity. The group’s 10.50% SSNs jumped around +9.0 pts to 99.2 today on the news, with the 2nd Lien PIKs up +14.9 pts to 104.1.

Across telco names, Cellnex bonds traded up this week (+2.2 pts on average), the 2027s by nearly +5 pts, following the withdrawal of its bid for Deutsche Telekom. On Friday, Sky News reported Virgin Media O2 has submitted an offer to buy TalkTalk for around £3bn, including debt. TalkTalk’s SUNs started the day at ~80.5 pts, and have since popped to 89.4.

Elsewhere, Moody’s downgraded Danish telco TDC Group’s (DKT) CFR to B3 (outlook negative) as its June 2023 maturity looms. Agency analysts outline that the downgrade reflects rising interest costs, which “will certainly constrain the ability of the group to generate free cash flow and reduce leverage over a prolonged period of time, while keeping its interest coverage metrics under pressure”.

Other ratings action this week include:

BestSecret – CFR to B1 from B2 on new refi, outlook stable (Moody’s)

Keafer – ICR upgraded to BB- on new equity and performance, outlook stable (S&P)

Inspired Entertainment – CFR upgraded to B2 on performance, outlook positive (Moody’s)

Tereos – ICR upgraded to BB- on improved metrics, outlook stable (S&P)

Twitter – BB+ ICR remain on CWR “as Musk deal teeters” (S&P)

Leveraged Loans Primary

Heatwaves are hitting the whole of Europe and the summer break can’t come too early for European loan market participants, as risk appetite remains fearfully low. But despite this, some single-B borrowers took the plunge, given the limited time to issue ahead of the August break.

Execution remains challenging, and the gates are fast closing for any new deals, outside of small add-ons from strong credits. But they must be willing to accept larger OIDs, say market participants.

“We can’t expect much. Fundamentally there is very little liquidity in CLOs, no one is printing new ones. Few repayments coming back into the system, there is no M&A, no equity raise, no high yield bonds replacing bonds. None of those components that give you churn are really happening, so no one really has any cash to deploy,” bemoaned one syndicate head.

Multiple CLOs tell 9fin they are bearish on new investments and are not ramping up any new facilities. Thursday's print from Anchorage, Anchorage Capital Europe CLO 6, showed CLO triple-A liabilities widening to E+210 bps, suggesting potential struggles in finding strong anchors for the largest and safest tranche.

Few loan pre-marketing processes remain alive, mostly involving established issuers sounding-out a tap. “Some debut issuers tried to presound a price in June, but they had to scrap it entirely. They were probably a bit aggressive for unfamiliar names and less strong credits,“ said a buysider.

After a number of LBO deals were offloaded to direct lenders, banks are now bumping up against the limits of private debt capacity. In the past few months direct lenders did the heavy lifting on hung deals, but they do not have room for every deal and are more likely to take on defensive names. Some are reportedly starting to ask for greater OIDs as the overall market continues to decline, said the syndicate head and CLO buysider.

“I think to some extent it doesn't matter what the credit story is if there is no liquidity. You can bring the best deal at the best price and there is some elasticity, but there is a general lack of money at the moment,” said the syndicate head.

Empty pockets pose a challenge for live deals with banks still mulling options for Gaming1’s €300m TLB, now more than a week on from the original commitment deadline. All options are still on the table, including direct lending, while fears remain that the deal could be pulled entirely, as reported earlier this week by 9fin.

One option includes Macquarie taking on half of the deal (the portion they’d underwritten), with the remainder going to direct lenders at a lower OID than official price talk. This week the syndicate desks were still trying to lure lenders in with an OID in the low 90s. The Belgian casino and sports betting firm’s TLB came to market guided at E+525 bps, with a 0% floor and a 95 OID, which investors noted was close to private credit pricing.

Dutch pharma business Norgine opted-out of syndication entirely and placed a €650m senior facility to support Goldman Sachs Group’s buyout with private lenders and banks. Pricing is reported to land around E+625 bps and was expected to complete towards the end of this week.

KKR, Goldman Sachs and Jefferies underwrote the debt and decided to syndicate mainly to direct lenders. The process reinforced the expected trend of underwriters bypassing the choppy public markets and opting for more buoyant private markets.

Still hoping to find signs of liquidity in broad syndication for strong credits, UK-based women's health business Theramex has launched a €550m term loan B to finance its acquisition by Carlyle and PAI Partners. The deal launched after heavy premarketing that brought positive feedback and some preemptive cleaning up of aggressive docs, according to a market source.

The term-loan B is guided at E+525 bps with a 92.5-93.5 OID, with B2/B expected corporate and facility ratings. Existing lenders are offered a cashless roll, with proceeds used to refi existing debt and pay transaction costs. Commitments are due on 22 July.

Galileo graduates cum laude

Theramex may gain confidence from the only print this week that managed to do exceptionally well. Galileo Global Education, Europe’s largest for-profit higher education group, was the valedictorian of the challenging summer primary, securing top marks from investors.

The Luxembourg-headquartered firm avoided painful OID cuts seen during recent loan marketing exercises, coming with a clean structure, and in a defensive sector seen as a counter-cyclical safe haven from a potential recession.

Even against tough competition Galileo has a good track record of growing revenue, with some calling the transaction a “slam dunk” in 9fin’s preview.

Considering market challenges the Galileo deal graduated well, managing to upsize the term loan B add-on by €50m to €300m. The non-fungible tranche landed at E+500 bps and 93 OID, at the tight end of talk at 91-93. The deal funds four bolt-on acquisitions, two in Canada and two in Western Europe. The facility is rated B2/B, the same as the previous deal.

Leveraged Loans Secondary

Secondary markets were quieter this week moving less than 0.2 points up or down. The market was equally balanced with stronger and more resilient sectors to macro woes picking-up, while names with more exposure to inflation and recessionary factors in negative territory.

IT, Financials, Consumer Staples, Healthcare and Utilities rose while Consumer Discretionary, Industrials, Communication Services and Materials all retracted.

UK cinema giant Vue Cinemas saw its loans dip the most, marked down by five points to 65.5-mid as news hit on Thursday of a £1bn restructuring agreement with creditors. The majority of lenders and shareholders will give access to £75m of additional liquidity to help deleverage in the challenging post-pandemic market.

The agreement envisages a debt-for-equity swap with around £465m of existing debt removed from the balance sheet with existing first-lien lenders taking 100% of the equity. The £165m second lien PIK facility will be extinguished.

The second largest decliner was French high-end food retailer Prosol, one of the three suppliers to the Grand Frais supermarket. Its €1.38bn TLB slid -4.4 pts further to a new low at 75.6-mid, according to 9fin data. On 24 June S&P downgraded the CFR to B- citing two consecutive quarters of weak profitability and negative free operating cash flow. Prosol faces increases in its cost base, including goods — as it mostly sells fresh food — and is pressured by rising personnel expenses, and decreased demand for supermarkets after pandemic restrictions were lifted.