Market Wrap

LevFin Wrap – Bach BidCo brings HY Overtures

Huw Simpson's avatar
Michal Skypala's avatar
  1. Huw Simpson
  2. +Michal Skypala
9 min read

High Yield Primary

Building on last week, we’ve continued to see positive momentum for a potential re-opening of HY Primary in Europe. A small TLB add-on from Barentz, and a constructive market reception to IG corporates and US HY issuers should provide comfort to European subgrade counterparts, who eagerly await new paper.

BayerTelia and Volkswagen all announced Hybrids — the latter pricing €1bn | €1.125bn on books of €5.5bn | €4.75bn — and in the US, HY and Lev loan markets continue to rumble forward. Automotive manufacturer Ford Motors priced $1.5bn 4.95% NCL SUNs at 99.987 (final syndicate books were $4.3bn), while Avis Budget priced an upsized $250m L+350 add-on TLC at 97.5.

On Wednesday, crossover name TVO (BB+/BBB-), announced a cash tender offer for any-and-all of the €311.8m outstanding 2023 SUNs. The Finnish nuclear producer will issue €600m 2.625% SUNs due 2027 under the group’s EMTN to fund the tender and for general corporate purposes.

Sounding out

Murmerings from a trio of Italian corporates may also boost confidence.

Consulting group BIP — via issuer Bach BidCo — announced the successful pricing of a €70m tap (98 OID) to its €275m E+425 SS FRNs due 2028. Originally offering €50m, the upsized private placement will repay borrowings under the group’s RCF, provide cash on balance sheet and potential funding for bolt-on acquisitions. A roadshow presentation outlines two projects in the M&A pipeline, including a Fintech engineering and capital markets company with two offices, one in London and another in New York (it’s not 9fin…).

Elsewhere, motorcycle clothing group Dainese is making use of private credit markets to fund its acquisition by Carlyle. Purchased from Investcorp for an EV of €630m, a €260m unitranche is underwritten by Arcmont and HPS, according to LPC.

And on Wednesday, listed real estate business Immobiliare Grande Distribuzione (IGD) announced a possible mandate for €350m (exp.) green Senior Notes due 2027. Expected ratings are BB+/BBB- (S&P/F), and marketing concluded on Thursday with over 90 investors engaged. Feedback to date suggests pricing in the mid-to-high 3s, and execution could come as early as Monday next week.

However, there are still very obvious and real concerns for issuers looking to market new deals — not least the general underperformance of existing deals in Secondary. Rates adjustments and a general re-pricing of risk have contributed to the underperformance (on a price basis) of deals issued in the past two years — and some 83% of the outstanding Euro HY issuances are currently trading below par (in red below).

High Yield Secondary

Average prices in Secondary were flat this week (-0.04 pts), after marking their first gain in 2022 last week (+0.32 pts). By Industry, Energy (+0.36 pts) was once-more a top performer, with Financials (+0.16 pts), Industrials (+0.04 pts) and Real Estate (+0.04 pts) the only other sectors out of the red. Consumer Staples (-0.22 pts) and IT (-0.33 pts) fared worse.

Rolling into Series 37 on Monday, the iTraxx Crossover held fairly steady throughout the week, closing at 372 bps on Thursday. There were also some positive signs in fund flows — BofA Global Research/EPFR Global reported Euro HY inflows of $341m, a sharp turn on recent trends. Global HY focused funds saw outflows slow to just -$67m, while US focused funds registered a -$411m outflow.

Turning to single-name moves, O&G exploration and production company Tullow saw its 2025 SUNs up more than +3 pts. On Monday Tullow announced the completion of Occidental Petroleum’s interests in the Ghanaian Jubilee and TEN fields with Kosmos Energy. The transaction increases Tullow’s equity interests in the fields to 38.9% and 54.8% respectively via the exercise of pre-emption rights, and adds around 5 kbopd of unhedged daily production.

On Friday’s Q4 results call, Saipem provided further detail around the dramatic revision of FY21 EBITDA, which caused the O&G and renewables service group to seek financial support. Details of the recapitalisation plan announced today include a €2bn rights issue, €1.5bn in short-term liquidity to bridge to the capital raise, and a new €1bn RCF. While the group’s debt traded up around +1pt on the week across the stack, the longer dated 2026 and 2028s softened after the call, with one analyst saying that in his view, the plan was ‘underwhelming.’

Commodity trader Trafigura continues to raise additional funding, upsizing the nine-month $1.2bn liquidity facility agreed in March to $2.3bn, and refinancing its Samurai loan ($790m-equiv.). As reported in the FT, Group CFO Christophe Salmon warned that a lack of access to capital — and the current energy market crisis — will force smaller traders out of the market, leading to a wave of consolidation. The 2026 SUNs were up +4.3 pts on the week.

One of several issuers to pull new deals in early 2022, performing and non-performing debt investor Anacap saw its 2024 SS FRNs drop to the lows 90s in mid-March. However, Tuesday’s FY 2021 earnings reported collections up +51.8% at €131.5m, and Adj. EBITDA +86.4% at €99.1m. The 2024s have since traded well, up +3.3 pts to around 95.

Hot wings

Although the majority of Consumer Staple names were softer on the week, it’s been a winner for ‘Chicken King’ Ranjit Boparan, owner of 2 Sisters Food Group. Conclusions are “imminent” over ongoing discussions to move to price ratchets which cover 100% of feed costs, and concerns of a potential covenant breach in Q3 2022 are effectively quashed. 9fin’s Emmet Mc Nally reportsBoparan’s 2025 SSNs, which dropped into the 60s in early March have recovered +7.6 pts this week, last seen at ~78.

Weighing the options

And lastly, we also released a new deal prediction this week, outlining several options we see for German-based measuring technology group Schenck Process, and its looming June 2023 maturity wall.

Leveraged Loans Primary

After weeks of silence, two small add-on prints from defensive sectors have removed some of the tumbleweeds from loan primary. It’s not yet the big reopening we’ve been awaiting, but smooth digestion by the market is giving promise that issuers may dip in primary waters in the weeks to come.

Dutch chemical distributor Barentz successfully tapped the loan market for a €100m add-on to its existing €325m B2/B rated (Moody’s/S&P) TLB facility that pays E+ 400 bps, pricing at 99 OID. The add-on came at the tight end of guidance at 98.5-99 OID and a slight discount from the 99.5-mid level where the loan is quoted, according to 9fin data.

The fact that the deal was seemingly only offered to existing lenders struck some by surprise. Sponsor Cinven initially posted a notice through the agent on Tuesday evening, outlining its intention to issue an add-on, and asked existing lenders to respond with interest. Two days later NatWest Markets was running an order book with a Friday commitment deadline.

The deal is structured based on a €195m pro forma FY 2021 EBITDA, giving the company 5.4x senior secured leverage through the first-lien TLB loans and 6.7x total net leverage including second lien facilities.

Barentz will use the proceeds to fund its recent acquisition of much smaller French peer Unipex for an undisclosed price, and for general corporate purposes. Unipex has an EBITDA of around €7m. The acquisition was “back-stopped” in case the add-on was not successful, with sponsor Cinven willing to put in cash if needed.

Credit Suisse was the lead on Infinitas Learning’s €110m add-on (fungible with an existing TLB that pays E+450 bps) which was pre-placed at a 98.75 OID. The Belgian education publisher will use the proceeds to fund the acquisition of Portuguese peer Leya and to refinance existing debt. Infinitas’ outstanding facility was quoted this week close to par at 99.7-mid, where it held firm after the new add-on was priced.

On the other side of the pond, Platinum Equity-owned US chemicals company Solenis launched a $300m incremental TLB add-on to pay down outstanding ABL borrowings and add cash to the balance sheet for general corporate purposes. The water chemicals firm received a tepid reaction to its Q1 2022 results last Wednesday. With a -7.2% drop in adjusted EBITDA to $123m and a -$64.8m levered post-tax cash outflow for the period October to December 2021, the company failed to make a splash. However, lenders were willing to lay the blame on macro moves.

After the first glimpse of paper supply, the sellside and buyside now expect that primary will follow the post-pandemic playbook of spring 2020. Small taps from resilient names first and then new money deals to come after Easter. With elevated market volatility, leads are doing the heavy pre-marketing groundwork before they open syndicate books on a new deal.

“On our side we don't have anything that we are leading before Easter,” said one syndicate banker. “New money deals do not want to go out right now, I think it’s a little bit too early and no one is under pressure yet.” A second banker admits that the tone in the market has turned positive and a couple of issuers are pre-marketing to lenders.

However, a big question mark still revolves around primary demand for jumbo LBO financing for UK retailers such as Unilever TeaMorrisons and Boots. Underwriting banks have reportedly been trying to reshuffle parts of the debt to private credit lenders to relieve the weight on their balance sheets. In recent years private credit and unitranche financing have already cannibalised the lower border of liquid syndicated loans. A closed primary, and shrinking HY appetite has only accelerated the trend to a tipping point as the gap in the cost of funding between private and syndicated debt has narrowed.

“I haven't personally seen a real cannibalisation by private credit on deals we are looking at,” said the first syndicate banker. “I would think it is probably only on deals which banks are shying away from, or where they’re not willing to underwrite right now.”

Leveraged Loans Secondary

In secondary, sentiment has improved with all industries gaining ground. The market took a positive turn this week with signs of volatility bottoming out, according to two buysiders. Stress remains, however, on individual names with Russian or Ukrainian exposure or those suffering from raw materials price pressures.

Holland & Barrett saw both its €418.9m and £450m TLBs fall to 72.5 and 70 level, from respective quotes 80 and 78.8 from last Friday, while both loans hit 65 on Thursday. The UK health foods retailer was reportedly struggling to pay interest payments on its €418.9m loan, even though the company is not directly under Russian sanctions list. Previously linked via Mikhail Fridman, the oligarch has now stepped down from the LetterOne board and had shareholdings in the investment group frozen.

The only double digit decliner was Swedish mattress producer Hilding Anders, who saw its €500m TLB fall further into deep distress territory to 50.5, from 61 quoted last Friday. The Russian segment made up 38% of net sales, and 53% of the group's employees as of 2020. Already in trouble, the TLB was quoted in the 80s even before the invasion.

Biggest weekly loan decliners

Elsewhere, a c.€53.8m-equivalent European leveraged loan BWIC hit the market yesterday, with bids due at noon Friday. The list comprised 28 issuers in 34 TLB tranches, mainly in euros, and three sterling pieces. The largest line was a €5.5m piece of Vermaat’s loan, followed by €5m of Corialis.

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