Market Wrap

LevFin Wrap - We’ll get by with a little help from our FRNs

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

High Yield Primary

A shaky backdrop has increased price expectations for new issuers, but the market is certainly still open for business, as we tracked ten deals in primary this week. 

Five Fed hikes are now priced in following Wednesday’s FOMC meeting, and on this side of the Atlantic, the BoE is widely expected to follow the December rate hike with another 25 bps rise, up to 0.5% next week – the first back-to-back hike since 2004. Brent crude surged again (close to a seven year high of $90/bbl), and equities have dropped, as investors price in rate rises and shed growth stocks. It might be that issuers are keen to stay ahead of any worsening macro shocks, but despite the volatility, it’s been a busy week with ~€3.7bn (equiv.) in market. Following recent themes, floating products are still in-vogue, and sentiment continues to slide on fixed rate deals. 

Flipping not flopping

The shoe was on the other foot for Renta Group, who re-jigged its entire offering from fixed into floating notes on Wednesday. The Finnish equipment rental company initially marketed €350m Senior Secured Notes due 2027 (B2/B/B+), which together with €310m of equity will fund the acquisition by IK Partners and certain minority shareholders. The new €350m SS FRNs gained traction, tightening successively from IPTs of E+450-475, to PT in the E+450 area, before landing at the tight end for E+437.5 bps at par.

Flipping an entire deal into FRNs during the bookrunning process is fairly exceptional, reflecting the changing dynamic in High Yield. In recent deals, the closest we’ve seen tends to be a reshuffle across tranches. Oct-21’s Burger King France deal dropped the fixed tranche in favour of all-out FRNs, and Picard returned in Jul-21 – two months after the initial €1.71bn deal was postponed – downsizing the FRN portion to €650m from April’s €1,200m proposed tranche. 

The week’s second LBO, UK-based wealth management firm True Potential, announced a £675m (equiv.) secured offering across Sterling and Euros (B1/B). Cinven is providing ~69% of the new equity (£1,233m), with rollover shareholders the remaining 31% (£563m). Marketed on an Adjusted EBITDA of £160m (15.1x EV/EBITDA), this gives a comforting equity cushion of ~74%. 

The group works with around 17% of UK independent financial advisors, growing AUM from £6bn in 2018 to £16.5bn as of September 2021. Adviser recruitment has been cash intensive however, with discretionary capex of £151.1m for the LTM period ending September 2021.

Upsizing £25m in the bookbuild, both the £400m and €360m SSNs due 2027 were unmoved on PT, offering 6.50% and 5.00% respectively. Additional proceeds from the upsize will pay down a portion of the RCF drawn, improving liquidity to £180m.

Catenaccio for Scudetto

2020-21 champions, Inter Milan currently sit four points clear at the top of Italy’s Serie A table. The football club launched its long anticipated refinancing on Monday, offering €415m Senior Secured Notes due 2027 to refinance the existing 4.875% 2022s and the parent’s €50.2m RCF. 

Issued from the MediaCo – which receives priority on broadcasting and sponsorship revenues – the deal structure is designed to provide more stable income. Sponsor revenues from Asia have dropped (now making up ~30% of indirect revenues), which have for now have been tempered by increased broadcasting revenues due to the Champions league qualification. 

However, as we outline in our Financial QuickTake, the group’s on-pitch performance dictates the ability to service debt, and this is inherently difficult to forecast. 

Pricing on the new notes didn’t come cheap. IPTs were sent out at 6.75-7.00%, and although final terms settled at 6.75% (par), this is still nearly 200 bps above the 2017 offering.

Elsewhere, Czech lottery operator Sazka (now Allwyn) announced its intention to list on the NYSE through a merger with the Cohn Robbins SPAC, with an expected total EV of ~$9.3bn (11.5x 2022E Adjusted EBITDA). As sentiment improved towards the back end of the week, Sazka launched a tap of its existing 2027s, and (you guessed it) new SS FRNs due 2028 (BB-/BB-) – for a total size of €500m across the two tranches. Proceeds will refinance existing debt and fund general corporate purposes, potentially including bolt-on acquisitions and an upcoming €55m TLA amortization.

Other deals

  • $850m (equiv.) of USD and EUR SSNs were on offer from ION Analytics, with proceeds to repay a $250m Bridge Loan related to the Backstop acquisition, fund a $100m dividend to buy-back minority shareholders, $450m to repay an existing Term Loan, and $25m for GCP and related fees. A relatively aggressive set of covenant terms, these match those set out in the May-21 deal. Read our Legal and Credit QuickTakes for more. On Thursday price talk was sent out in the 6% area (USD), and 4.75% area (EUR). However, there was a late surprise as revised guidance of 6.125% and 4.75% emerged on Friday, with tranche sizes slashed to $250m and €200m. 
  • Italian IT group Lutech issued a €63m private placement of its 5.00% SSNs due 2027, and Finnish property maintenance firm PHM priced a €40m tap of its 4.75% SSNs due 2026 at 102. Both of the add-ons will term out RCF drawings and fund M&A. The final tap came from Alain Afflelou, offering €50m (together with €14m cash on hand) to fund a shareholder distribution.
  • As we covered last weekCovis Pharma is in market to refinance existing debt and fund new portfolio acquisitions. We’ve not seen any updates on last Friday’s IPTs of 7.50% area for the $475m SSNs, and 7.00% area for the €375m SSNs due 2027. For more, see Chris Haffenden’s coverage in the Friday Workout.
  • On Thursday, midstream and downstream energy group Prax announced a potential offering of $250m Senior Secured Notes due 2027 to refinance existing debt, and place $97m of cash on balance sheet. Investor calls run from 27-Jan to 1-Feb.

Leveraged Loans Primary

The end of the first month is approaching full-speed and the market is running full-throttle. 

“It’s more than hectic,” said one buysider, with three others admitting to multitasking their deals, sitting in one deal’s lender call while preparing another for their credit committee. “I’ve had to re-listen to two lender calls this week,” said a second buysider.

Emblematic, US cyber security firm McAfee demonstrates the depth of the market this week, out with a gluttonous $5.66bn-equivalent LBO by a consortium led by Advent International. (Read more here.) Supported by brand and scale, with plenty of white space to grow into, the buyside expects to rush at this one.

Joining McAfee, Netherlands-based Hunter Douglas, manufacturer of window coverings has tabled a blinding $3.1bn and €1.35bn TLB package (B1/B+) supporting its buyout by 3G. A third heavy-hitter in the market is US-based betting company Scientific Games Lottery, backing an LBO by Brookfield Asset Management. Funds are split between a $1.77bn portion (talked at S+375-400 bps) and a $750m-equivalent euro tranche (E+425 bps) (B2/B+/BB-).

“The sheer volume has created a bifurcation of good deals and bad deals,” said a third buysider. “You don’t have the time to do the due diligence on every deal, so some have to be quick nos.”

AutoForm outperforms, Wella ties up

One the strong end of this continuum, Swiss simulation software firm AutoForm priced its €475m 2029 TLB (B2/B) at the tighter end of revised guidance (E+362.5 bps and 99.5). Cash generative, lacking competitors and engratiated with its large OEM customers, for many, AutoForm was a speedy decision: “I would do it in a heartbeat,” said a fourth buysider at the time. “Everyone will pile into this one, just place an order.” (Read a full preview here.)

Another popular deal this week was hair products manufacturer Wella, who pushed commitments a day early, upsized by €125m and ground pricing tighter on glossy demand. Buysiders had reservations on the deal’s pricing and docs (read a full preview here), but were full of praise for the credit itself, bolstered by strong diversification and scale, if under the shadow of some declining market shares and previous majority owner Coty’s own knotted market reputation. 

Pricing, instead, was central to buyside concerns, especially accounting for (originally) a three step-down margin ratchet and a 15 bps ESG ratchet. The margin ratchet was cut to two reductions before commitments, but came alongside a corresponding price talk squeeze, that a fifth buysider glumly labelled “tit-for-tat”.

“We ended up putting in a smaller order because of the pricing,” said a sixth buysider. Nonetheless, growing from €800m to €925m, the deal ultimately closed at E+375 bps and 99.75 from initial talk of E+400-425 bps (B2/B).

A cut (not) above

Other deals received a more mixed reception. Group of Butchers, brought to the market by debut sponsor Parcom, struck buysiders as lean enough for midmarket, as well as fraught with risks related to ongoing M&A-backed growth. Still, outperforming margins and non-cyclical demand made this €330m 2029 TLB (B2/B) a more balanced diet for some, which ultimately closed at the wide end of E+425-450 bps guidance. (Read a full preview here.) 

BC Partners-owned manufacturer of resin-based consumer goods Keter Group also split buyside opinions this week. Also closing at the wide end of E+425-450 bps guidance, Keter’s €1.175bn 2029 TLB (B3/B) did not manage to completely shed its former reputation in the eyes of some buysiders. Others bought the turnaround story, even without Covid home improvements boom: “I’m conscious that at some point this trend [pandemic spending] will die down, but I’m considering 2019 to be my base, not the pandemic,” said a seventh buysider. “I still expect good growth, because people are moving towards hybrid working, spending more time at home, and moving to larger properties, which are all supportive trends for home improvement spend.” (Read a full preview here.)

Recap reloader 

As predicted in our 2022 Leveraged Loan Outlook, recaps emerged as a theme this week. Besides Wella’s closing, Dorna’s recap is still in market, with France-based Saverglass now joining. The company, which manufactures glass bottles primarily for spirit and wine, is out with a €500m TLB paying out a €100m recap to sponsor Carlyle.

At E+450-475 bps, Saverglass comes at a premium to other B2/B deals in the market. Buyside puts this down to an aggressive CapEx plan that will delay deleveraging for some years and keep cash flow negative. “But I think the pricing premium takes that into account nicely,” said an eighth buysider, who was positive on the business. 

“The negative cash flow is for a pretty aggressive, but robust, growth plan, so I’m comfortable with that and I think the pricing reflects it well,” said a ninth buysider.

Dorna’s recap, making up €400m of a €975m debt stack, according to one buysider, draws more ire from investors. “I’m never happy to see a recap and the size of this one is disappointing, but it is balanced by the company’s cash generation,” said the eighth buysider. “I also don’t see any liquidity issues and they’ve upped their RCF.”

A house is not a loan

Spanish mortgage and banking services firm Grupo BC is still tying up its own €330m TLB (talked at E+425-450 bps). Generating decent cash and with low CapEx requirements, buyside focused on the macro side of this micro business, the shadow of 2008 never far from their minds. Diversified with non-performing loans, however, the company itself has some strength in a downturn.

Elsewhere, the buyside described the deal’s docs as “shocking”, crystallized by the company’s slender side, with an EBITDA of around €60m. “You can kind of mitigate for awful docs for a larger company because things are arguably less likely to go wrong, but for a smaller business, you’ve got so much that could go wrong,” said a tenth buysider. “Liquidity in the loans is smaller here as well.”

They went on: “We’ve gone back with a bucket list. We have problems with the margin ratchets, restricted payments, EBITDA adjustments, which are capped at 25%, and the baskets are ridiculous, but it’s just the standard things to complain about. Ticking fees aren’t so much of an issue here.” 

The Great Flood

Still more comes. Over in the Netherlands, chemicals distributor Caldic won a B3 rating on its €950m TLB - making it the only B3 euro loan in the market. Supporting a buyout by Advent International and merger with GTM Chemicals, the deal is split 60/40 between euros (E+400-425 bps / 99.5 guidance) and dollars (S+400-425 bps / 99-99.5).

Here, rating is a snag for some on the buyside. “Overall, our strategy is more defensive this year, we’re going light on B3s and upping our exposure to BBs, so we have to be wowed by lower rated ones to play them,” said the third buysider.

Another newcomer this week was ITP Aero. The Spain-based aero engine and parts manufacturer is out with a €575m-equivalent USD loan to support a new take off under Bain Capital’s wings. The company was founded by UK OEM Rolls-Royce, which nurses a mixed reputation in the aviation sector, having decided to back the declining widebody market.

Finally, the smallest of the bunch, market familiar House of HR has also returned with a €150m add-on (B2/B) to fund acquisitions, guided at E+375 bps and 99.5.

High Yield Secondary

Given the backdrop, it’s unsurprising to see an average -0.87 pts drop across all instruments this week, as some 92% of instruments we track registered a loss. Year-to-date, HY instruments are now around -1.61 pts softer. Outflows have continued, with Global- (-$600m) and US-focused funds (-$450m) building on previous weeks – and for the first time in 2022 – significant outflows for Euro-focused funds (-$311m). Volatility can be seen in the iTraxx European Crossover, which initially jumped 8 bps on Monday to 270 bps, bounced around mid-week, and hit 280 bps this morning.

The week's biggest mover, Real Estate (-1.36 pts) continues to suffer from Adler-related concerns. The group announced today it would be postponing financial reports due to the ongoing forensic special investigation led by KPMG, it is ‘highly unlikely’ that the Auditor will be able to provide an opinion by 31 March. A new timeline will be announced in due course.

In single names, Raffinerie Heide has shed gains made early in the year, dropping from a recent peak of ~95 to the high 80s, down almost -6 pts this week. It’s been a similar story for Standard Profil, whose 2026s had traded up to ~86 earlier this month, and are now down to 81 – as reported by the BBC, global supply of semiconductor chips have plunged.

Leveraged Loans Secondary

Secondary stayed steady this week, with buysiders continuing to keep their focus on more attractive opportunities in the bustling primary market. All sectors tracked by 9fin dipped minutely this week, led by Communication Services at -0.3 pts and Real Estate at -0.2 pts.

In individual moves, beds business Hilding Anders charged ahead, trending up +2.3 pts to 87 on its €500m E+450 bps 2024 TLB. At the other end, Chapter 11 emergee GTT Communications once more takes the top spot, falling another -3.1 points on its €750m E+325 bps 2025 TLB, followed by Spain bakery Berlys and Bellsola, whose €325m E+400 bps 2025 TLB was 2.4-points staler this week.


LevFin Wrap is published weekly on a Friday to subscribers and includes our Forward Pipeline. If you would like a sample of our Forward Pipeline or Deal Predictions, please complete your details here.

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