Market Wrap

LevFin Wrap - War weighs heavily on Europe

Huw Simpson's avatar
Kat Hidalgo's avatar
  1. Huw Simpson
  2. +Kat Hidalgo
12 min read

In a week of turmoil, the rapidly developing humanitarian crisis in Ukraine has for many observers eclipsed any broader implications for leveraged finance. Developments have however been wide-ranging, and we continue to track updates across the European market. 

In contrast to Europe where High Yield markets remain firmly shut, the US appears more insulated. Issuance has begun to pick up, and even price tight-to or inside talk. Chemicals group LSB Industries and battery manufacturer Energizer both announced small offerings in the second half of the week, which upsized and landed at the tight end of talk. Department store Macy’s managed to finalise an eight and ten-year $425m Senior offering inside price talk.


If you would like to read more about Macy's and other developments in the US market, click here. You can also listen the latest edition of Cloud 9fin where CEO Steven Hunter and US editor Will Caiger-Smith discuss the differing impact of war on the European and US markets. Listen here.


It’s some small consolation to see companies across Europe pull back from Russia in recent days, offering solidarity to Ukraine and its people. Those firms who’ve issued press releases to restrict operations or provide support should be mentioned – these include:

  • Profine – launched a fundraising campaign, contributing €150,000 for the purchase of humanitarian relief goods and facilitating the transport of goods using its existing supply chain into Ukraine
  • PHOENIX – preparing delivery of medical goods and equipment
  • M&S – Increased existing support with a £1.5m package to the UN Refugee Agency and UNICEF, and offering 20,000 coats and items of thermal clothing 
  • Volkswagen Group – halted production of vehicles in, and export to, Russia 
  • YIT – Ceased plot investments, apartment start-ups and material purchases in Russia
  • Zentiva – pledged a donation of 100,000 medicine packs to humanitarian aid programmes
  • Finnair – banned from Russia airspace until 28 May 2022, the airline has subsequently cancelled all flights to Russia until that date, and is planning staff furloughs
  • SSAB – Suspended Ukraine operations, and discontinued all sales to Russia and Belarus

Sanctions Increase

Now at B3/BB+/B, Russia’s LT Foreign Currency credit ratings have plummeted into High Yield, with some of their longer-dated bonds now trading in the 30s, and with sanctions increasing daily, the toll on the Russian financial system is considerable.

Last week we mentioned the potential impact on HY Sponsors – in particular LetterOne – the investment vehicle set up by Mikhail Fridman and fellow oligarch Petr Aven in 2013. On Monday the EU sanctioned both men, who subsequently stepped down from the LetterOne board. As the pair own just under 50% of LetterOne shares, the sanctions will fall on the individuals, rather than the group. So, while Fridman and Aven have had their assets effectively frozen, and no longer have any rights as shareholders, the group is not directly affected by these sanctions.

The EU also sanctioned Alexey Mordashov. Main shareholder and chairman of Severstal, the world’s 67th richest man also owns around a third of TUI AG. He resigned from the supervisory board on Wednesday, and will have no access to shares in the group, whose market capitalization slipped under €4bn that day. Again, TUI AG was at pains to remind investors this would have no impact on the company, customers or employees. High Yield issuer TUI Cruises, the JV between TUI AG and Royal Caribbean with outstanding SUNs 6.50% due 2026, last tapped for €223.5m in October 2021 at 102.25, were seen today 96.1.

High Yield Secondary

With some extreme single-name moves, the downwards trend in Secondary continued this week, losing a further -0.39 pts (31% +0.55 pts | 68% -0.96 pts). IT was the only industry to mark a positive gain (+0.14 pts), while Real Estate (-0.57 pts), Energy (-0.57 pts), and Consumer Staples (-0.62 pts) saw the greatest losses. 

The iTraxx Crossover opened today at 373 bps, after starting the week in the low 330s, and HY funds registered their worst outflows since March 2020. BofA Research reports Global outflows of -$1,079m, -$752m for Euro-focused, and -$504m for US-focused funds.

Big Oil Exits Russia

Oil major BP has already signalled it will divest its ~20% stake in Rosneft – although it’s unclear to who, and at what price – in a move that could lead to a non-cash charge of up to $25bn. Shell and Equinor followed suit, both planning to end JVs in Russia. 

In a less definitive move, commodity trading firm Trafigura is still “reviewing the options” with respect to its shareholding in Vostok Oil. It states it has frozen investments in Russia, is providing charitable aid to Ukrainian refugees, and assisting its Ukraine-based staff. 

Its €400m SUNs due 2026 have dropped from ~98 last Friday to 85 mid-week, before recovering to ~88 on news of a $5.295bn RCF signed on Thursday, which has been joined by 55 banks.

Other energy names include Saipem, who shocked investors with a remarkable earnings downgrade in January. You can read our Stressed QuickTake here. The group’s SUNs traded down a further -3 pts this week. UK-based KCA Deutag released an update on Thursday outlining it’s recovery from December’s cyber attack, with critical business systems now back online. Russian exposure is estimated at around a quarter of earnings, and the group’s 2025 9.875% SSNs have dropped over 2.2 pts this week. Raffinerie Heidie confirmed this week that it does in fact intend to contribute the Danish Kalundborg Refinery to the restricted group, in order to aid the refinancing of its Dec-2022 SSNs – last seen today at 86.3.

Excluding Veon, the largest single drop in Telco names came from Telecom Italia, who reported an €8.4bn FY 21 loss, and announced plans to split in two – reportedly in order to fend off a €10.7bn bid from KKR. Going forward, the business would consist of a NetCo (the fixed network) and a separate ServCo – which would contain the mobile networks, service platforms and data centres. Across the capital structure, the SUNs were down an average of -3.8 pts, and the 2033s by as much as -9.8 pts.

Automotive Pain

The Russian invasion is also having a noticeable impact on the automotives market. As reported by the FT, neon gas is an important component in microchip production, and Ukraine supplies around half of the world's supply. 

Russia is Renault’s second largest market, where it has majority control of AvtoVAZ which makes the Lada brand (21% Russian market share). Supply chain issues could be particularly acute – AvtoVAZ operates two plants in the country, and imports ~20% of their parts, while Renault also has its own facility in Moscow, which imports nearly 40% of its parts. Trading close to par at the beginning of 2022, the 2.50% 2028 SUNs were seen today at 89, offering a spread to worst of ~5%, closer to JLR than Peugeot or FCA

Management for automotive supplier Standard Profil confirmed they have no exposure to the AvtoVAZ line on last week’s Q4 earnings call, and were upbeat on their recently signed, and long awaited €30m RCF. However, the €275m SSNs have since shed gains made on the results announcement, and are down -4.5 pts on the week to 78.1, yielding 13.3%. You can read our pre, and post-earnings reports for more information.

In the Consumer Staples space, UK-based poultry and food producer Boparan watched it’s 2025 SSNs drop almost -10 pts. As noted in the Friday Workout, the group once again faces the combined storm of increased costs across gas, Co2, feed and labour. 

On Tuesday, contract caterer Elior surprised investors with the announcement of the shock departure of group CEO Philippe Guillemot. In a conference call to take questions from analysts, CFO Ester Gaide responded to questions on the outlook for 2022, you can read our coverage in full here. The 2026 SUNs are down -2.8 pts on the week to ~93. 

Earnings Progress

And finally, we look briefly at fourth quarter results, as to date, around half of European issuers have now released numbers. As you can see, Sales (+15.9%) and to a lesser extent EBITDA (13.2%) have both increased across our sample. We’ll be taking a closer look at how inflationary pressures and cost savings have impacted these figures once all companies have reported.

Primary Leveraged Loans

Geopolitical upheaval has left the primary calendar empty, with buysiders saying “there’s nothing really coming for a few weeks now.” Even prior to the current volatility we’re seeing today, buysiders were already mentioning a pipeline of “smaller” deals from “less well-known sponsors,” credits that would likely struggle in the market today, especially considering PE giants aren’t bringing deals to market.

As a first buysider said: “If you're an issuer today, the market is basically shut. Investment grade is okay, but in LevFin it’s too difficult today.” 

To make matters worse, buysiders hoping for a return to normality in raw materials pricing have seen their hopes dashed, with commodity prices experiencing the biggest weekly rise since 1974, as measured by the Bloomberg Commodity Price Index. 

“My expectations were that raw materials inflation, supply chain issues and overall inflation, going into 2022, had reached its peak, and might plateau and ease into the second half of the year. But now you’ve seen where oil prices have gone, where gas is and key commodities are,” said a second buysider.

Where raw materials inflation was the primary concern for industrial analysts, inflation in wheat and grain prices are likely to create a stomach ache for analysts looking at food businesses now as well.

Price of Wheat

Source: CNBC

But forever looking for silver linings, buysiders now estimate that average margins for single B credits have grown from E+350 bps to E+450 bps, or “even 500 bps, so there’s more juice,” as the buysider said.

Morrisons’ is likely to be an example here. Goldman Sachs, BNP Paribas, Bank of America and Mizuho are saddled with a £6.6bn financing and are considering taking actions to increase buyside interest, such as adjusting the capital structure to favour loans over bonds, after selling the subordinated tranches privately

Buysiders speaking to 9fin were previously told that the financing would come at the end of January 2022. But since then lenders have not been given a clear picture of what the Morrisons financing schedule will be. 

A bit further up the pipeline, there’s also signs of trouble in M&A overall.

KKR is hitting obstacles for the sale of German consumer research firm GfK, with trade buyers such as Kantar and NielsenIQ no longer in the running, according to Unquote.

Less than a year ago, GfK issued a €650m TLB at E+375 bps, down from initial talk of E+400-425 bps, to refinance existing bank debt. The TLB this week dipped just below 99, according to 9fin data.

This week also saw the withdrawal of Bain Capital and CVC from the auction process for Boots over inflated price expectations, according to Sky News, though buyers Asda, Sycomore Capital and Apollo are said to have submitted bids in the region of £6bn. 

Leveraged Loans Secondary 

Secondary prices continued their plunge downwards, with all sectors, save IT, declining this week, though average drops of less than a point hide some large single-name moves.

Largest average weekly single-name moves across EUR and GBP TLBs

Among the worst affected were Russia-exposed credits Hilding AndersStada and packaging firm Kloeckner Pentaplast, whose resin/PVC inputs are closely linked to oil prices. 

The former’s €500m TLB paying E+450 bps dropped a sizable -17 pts this week and is currently indicated at 66.5-mid. The loan matures in November 2024.

The Swedish bedding and mattress group had net sales to the Russian market accounting for ~37% of revenues, according to the company’s FY 19 report, available on 9fin here. As of 2019, the majority of manufacturing activity was also centred in Russia, with 55.5% of employees (5,581 of ~10,000 total) based in the country. Given the manufacturing exposure, Russian lease liabilities are also present, with 492 separate agreements as of 2019 (11 month lease periods). Holders in the loan include Barings, GLG Partners and Investcorp. 

Seven of Stada’s euro and sterling-denominated loans trended downwards this week at an average of -3.1 pts. In 2020, Russia accounted for around 14% of its sales, some €433m-equivalent.

Stada bought a portfolio of over-the-counter drugs in Russia and the CIS region from Takeda in March 2020, financed through a €600m bond issue, and has previously acquired drugs portfolios in the region from GSK. It bought Ukraine’s Biopharma In 2019. 

It operates two main manufacturing facilities in Russia and one in Ukraine, with a supply chain centre in Moscow, noting in its risk factors that although many sanctions regimes exempt pharmaceutical products, the Ukranian regime does not, and this has prevented it selling its Russian-made products into Ukraine since 2014. It has also prevented the financing banks of its Ukrainian operations from making payments into Russia.

The conflict since 2014 has also created regulatory obstacles for drug approvals, delays and bottlenecks in production.

Another Russian-related name, UK-based health and wellness retailer Holland & Barrett saw it’s Euro and Sterling TLBs drop -1.6 and -2.9 pts respectively – owned by LetterOne, sanctions were recently placed on former board directors Mikhail Fridman Petr Aven.

Austrian packaging group Schur Flexibles’ €475m TLB held steady with a conservative -0.29 pt fall this week. Accounting regularities – which led to a -25 pt drop in late February – were reported in the first communications with lenders since the loan was issued in September. Lenders chose Houlihan Lokey and Milbank as their advisers, with a lender waiver request expected next month. On Thursday, S&P downgraded the firm to CCC- (credit watch negative), citing limited liquidity. See our latest update on the credit here

Although the credit has stabilised around the 80 mark this week, another notable secondary name is Genesis Care, which is also facing liquidity issues. At an earnings call yesterday, lenders were told it is divesting its cardiovascular business and preparing a capital increase, according to buysiders. The Australia-headquartered oncology provider was downgraded by S&P to CCC+ in November. 

Genesis Care Pricing

Harking back to the summer of 2021, Comdata is once again 9fin’s biggest upward mover. Comdata’s €355m TLB paying E+500 bps rose +4.5 pts this week, indicated at 70.55-mid. Previously mired in restructuring talks, the business said on 8 June 2021 that it had reached an agreement to reduce its financial indebtedness significantly. 

Also an upward mover, Paysafe’s €275m and €435m TLBs have risen +0.53 pts on average, after management on Wednesday’s Q4 earnings showed cautious optimism over the firm's return to growth, in particular the digital wallet segment. Read our earnings update here

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