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Private Credit 

Michal Skypala

This week has been eventful! The contagion from SVB’s off-the cliff dive ripped through markets, leading to wild gyrations in bank stocks, in Crossover, in Treasuries and in most credit products. HSBC’s purchase of the UK arm for £1 stopped one form of contagion in Europe, but investors fixated on Credit Suisse’s solvency, thanks in part to one of the worst-timed accounting restatements ever seen. Even a CHF50bn backstop from the Swiss National Bank didn’t entirely calm conditions.

The ECB hiked rates by the expected 50 bps, but dropped forward guidance and signalled a “data-dependent” approach, which was read as dovish by the markets. So is the global banking crisis averted? Can we get on with the important business of leveraging up corporates? Not so fast.

European LevFin hasn’t been the main pain point this week, but it’s not isolated from the shockwaves in markets. The buyside is more cautious, the CLO machine will likely slow down, and the limited demand pool could shrink further.

“Big accounts like PGIM used to be good for €100m [ticket] in every new loan, now it’s more like €20m. [There are] fewer new warehouses to fill, fewer CLOs inside reinvestment, and each individual CLO can only buy €3-€4m clips of each issue,” said a syndicate head.

Bankers surveyed by 9fin in the middle of the week were struggling to find their crystal balls, and preferring to wait and see before moving ahead with primary projects. Even if there’s no bank collapse imminent, the volatility in credit indices and Treasury yields is enough to put primary in a state of everlasting price discovery.

“If Crossover goes up and down like this, it will be difficult to place deals,” said a second head of syndicate. “If you started pre-marketing you will continue to see what people say, but if you haven’t started you won’t start until this stabilises.”

The tough market should give the upper hand to the buyside, because primary remains largely driven by technicals.

“The sellside have a tendency to be a bully and take advantage when things are good. So, when things aren’t okay, you have to extract as much as you can in terms of pricing. You've got to wring the blood from the stone,” said one buysider. “We need to extract more. If it's 500bps, make it 550bp. We are very cautious right now.”

There’s some agreement is that primary will be mostly paused until market stabilises. It’s not totally dead though — Barings Private Equity Asia launched a $1.66bn-equivalent incremental first-lien term loan B to back the merger of its Hong Kong-based business services companies Tricor and Vistra, and French insurance brokerage and consulting group Diot-Siaci is also in the market with a €150m-€200m term loan B.

But views are split on whether an improvement in conditions is going to take a week, or whether the poor conditions could drag on through to Easter or beyond. Credit Suisse’s once-mighty leveraged finance operation had already been pared down last year, so the arranging bank power balance shouldn’t be too affected by concerns over the bank. Europe’s large banks in general should be relatively insulated from the SVB shockwaves, with smaller unrealized rates losses than their US counterparts, but successful execution of cross-border deals requires the US market to be fully up and running.

“European large banks, especially LevFin banks, are not as exposed to SVB issues as the small US banks are, but if they could be exposed to other systematic risks to get them in trouble I don’t know,” added the second banker.

Deals already in the market are expected to try to push through but the question is now at what price.

A long-awaited A&E process for German nursing home operator Alloheim, however, is expected to be delayed. 9fin previously reported that the business is looking to extend the maturity on its €500m TLB paying E+350 bps, alongside a €125m second lien and a €100m RCF on a springing maturity basis. The TLB currently matures in February 2025.

The launch date for even longer-awaited DSM Engineering Materials LBO financing may also be pushed back, after plans to initially launch in March. Other deals are being pre-sounded, including a transaction for a luxury goods firm and a building materials firm, but the fate of those deals is unconfirmed.

Deals that do come to market will also be under much more scrutiny. That opportunistic dividend recaps might be reassessed, and leverage points that were acceptable before the SVB collapse might be overoptimistic in today’s conditions.

“B3 is not the place to be now, no one wants to take downgrade risk here. We're being explicitly told that by PMs this week,” added the buysider.

While loan markets remains open, bond primary is essentially shut with only two prints being a privately-placed £15m slug of Paymentsense SSNs due 2025 that priced at 8% on Wednesday and the $450m SSN due 2027 from the Norwegian marine geophysics company Petroleum Geo-Services that came with 13.5% coupon and 98 OID.

The best performer this week in high-yield was the Finish paper and pulp company Metsa Board. It has seen its €250m 2027 senior notes paying 2.75% pick up 1.13 points to 95.62-mid. The second best price increase was recorded by the French testing and inspection certifier Bureau Veritas whose €500m 2025 1.875% senior notes rose by a point to 96.51-mid in a week.

The biggest loser in price moves this week was the Spanish headquartered International Airlines Group. Its €825m 1.125% senior notes due 2028 slid four points to 76.95-mid, almost erasing all 2023 gains. Moody’s revised the outlook for the corporate Ba2 rating to negative from stable on 8 March.

Bonds from the French underground exploration group CGG also suffered. The €585m SSNs paying 7.75% due 2027 have slid 3.84 points to 84.65-mid quote. The company has reported Q4 earnings on 2 March with sales up 6% Y-on-Y, EBITDA up 25.3% in the same period and total net leverage at 2.4x.

Serbian-headquartered telco United Group has seen its €500m SSNs paying 5.25% due in 2030 lose 3.68 points in a week to 71.64-mid quote.

Even with real fear ripping through the banking industry, there was some primary activity in leveraged loans this week.

Baring Private Equity Asia is on a lender call this Friday, seeking to raise a dollar, euro and potentially Hong Kong dollar financing totalling $1.66bn equivalent to back the merger of its Hong Kong-based business services companies Tricor and Vistra.

Thursday’s launch of the new TLB maturing in June 2029 (same as Tricor’s existing) was seen as an exceptionally bold move, with one buysider questioning the issuer’s market timing given the backdrop. Commitments are due March 28 with pricing the day after.

French insurance brokerage and consulting group Diot-Siaci is also in the market with a €150m-€200m term loan B. The new fungible TLB will mature in November 2028, and the funds will be used to repay RCF drawings and for general corporate purposes. Price talk is at 96.5 OID paying E+ 375 bps while corporate ratings are B2/B/B.

An A&E for UK petrol station chain Motor Fuel Group proved resilient against the tough market backdrop and printed seemingly unaffected on Wednesday. Of the £765m loan, £600m was extended at a price S+600 bps and 96.5 OID, the tight end of the 95.5-96.5 talk. The euro loan was increased to €1.15bn (from €1.085bn) and landed at E+475 bps (from current E+325 bps) and 97.5 OID. The final print was at the tight end of margin talk between 475 bps-500 bps and in the middle of the initial 97-98 OID guidance.

The buyside was bullish on the cash-generative business thanks to its strong market position, rising fuel margins, resilience against electric car competition, real estate asset coverage and competent management.

Even though the company has a history of releveraging on the back of large dividends, lenders are still happy to green-light another shareholder payment, in part because the company is sweetening the deal by also clearing out the second lien debt. Read more in 9fin’s preview.

French beauty packaging company Albea is in market with a €566m A&E, pushing out the maturity on a €444m TLB that currently pays E+300 bps and refinancing a $129m tranche with a L+275 bps margin, both due April 2024.

The deal is structured with 4.3x senior secured net leverage on a not too heavily adjusted €158m December 2022 EBITDA. The euro TLB is guided between 95-96 OID with E+500bps margin and will mature in December 2027. The deal has a margin ratchet that cuts by 25bps if leverage is below 3.5x and by 50bps if it falls below three turns, with a year’s holiday.

The increasingly volatile environment is also making buysiders keen for better economics on the transaction. Two lenders suggested the deal is good, but not good enough.

“Pricing isn’t shaking out where it should. They’re guiding at 500 bps, I would expect 550 bps,” said one buysider looking into the deal.

Albea has also been less than transparent to lenders in the past, according to a third buysider. They complained that company’s agent has never responded on the company’s capital structure, development and plans and that the business last held a presentation for lenders in June 2021, as there was no requirement under the docs to do so.

The company also did not inform this lender that the CFO and the CEO changed in 2022.

“That’s outrageous,” they said, calling it a “pattern of poor communication.”

But the company is also praised for good diversification on clients and products.

“I’m not worried about customer concentration, they have huge customers like Procter and Gamble and those types of customers are going to keep coming back with loads of different lines,” said the first buysider.

More to follow in 9fin’s preview of the credit later today.

INEOS Enterprises is also in the market with the latest piece of the Ineos complex to come this year. The €820m-equivalent TLB will be split into euro and dollar tranches and fund the acquisition of MBCC Admixture.

The euro piece is talked at E+ 425 bps-450 bps over Euribor, while the dollar tranche is guided at S+ 400 bps-425 bps plus a 10 bps credit spread adjustment. Both have initial OID set at 98.5.

The facilty is rated Ba3 with stable outlook by Moody’s. Ineos Enterprises has 3x total net leverage based on €644m Adjusted FY 2022 EBITDA.

“If a chemicals name is levered in the right place, like Ineos Enterprises is, then it’s manageable, but anything above 4x is stretched,” the lender looking into the deal said. “We’re no longer in a market that is so hot that everyone was getting the worst credits done.”

Even amid the market turbulence, lenders to German-based lighting manufacturer SLV Lighting are still seeing the bright side of its upcoming A&E request.

Although the proposal is not yet formally launched, two lenders speaking with 9fin expect the request will go through “without too much contention”.

“The deal is not bad compared to other A&Es — it is on par or with better conditions,” the lender went on. “The key is the equity uplift — I think that’s in line or even better than other A&Es we’ve been shown recently, especially if all the inflows go back to repay the company’s debt.”

Two meaningful BWICs were announced early in the week but trading volumes has decreased over the following days, as market volatility became more apparent, said a trader.

Understandably all sectors were in the red this week. The consumer staples decreased the most, down over 0.8 points while healthcare and industrials held in best with each losing around 0.5 points.

The French landscape and maintenance firm Idverde is the best performer this week again. It has seen its €335m July 2028 TLB rise 4.5 points to 71.5-mid quote. The company’s loan is at its highest price since it was downgraded to triple-C level by Moody’s at the start of November.

The French supermarket chain Groupe Casino was the biggest loser in loans. The company announced completion of the book building process of the secondary offering of the Assaí stake on Friday.

The €425m and €1bn TLBs due in 2025 slid 9.73 and 8.5 points to 76.3-mid and 76.46-mid quotes, respectively. The company is still feeling pain from its underwhelming 2022 results and news about being under investigation over alleged price manipulation and insider trading.

Casino reported the smallest topline and slimmest profit margin in five years. The only growth for the France-headquartered Supermarket group came from Latam, but this failed to offset muted performance elsewhere.

This is a bad time for Casino to underperform in terms of operations, cash flow generation and deleveraging, as the group faces a large maturity wall (€1.4bn in 2024 and €1.8bn in 2025) in France alone writes 9fin’s Denitsa Stoyanova in the latest earnings analysis.

Casino also announced last week that it was in exclusive talks to combine its French retail business with smaller food retailer Teract.

The second largest decline of almost 9.5 points came from the $60m 2026 TLB from Technicolor Creative Studios. The French movie post-production specialist announced last week it had reached an agreement in principle on the provision of €170m in new financing including a recapitalisation plan.

A €71.5m BWIC was due on Tuesday at noon UK time.

The mixed list has 29 tranches including nine bonds. The largest ticket is €5m of Voodoo’s 2025 TLB.

An hour later a €152.5m BWIC was due, that likely came from the call of CQS’s Grosvenor Place 2015-1, based on the holdings disclosed in the CLO’s last investor update.

The issuer announced on March 3 that the deal would be called.

The list has 35 tranches including six bonds — a €6.2m piece of Cirsa’s 2025 FRN, €4m of iQera’s 2024 bond, €3m of Q-Park 2025s, €5m of RCS & RDS 2025s, €2.5m of Techem 2025s and €3.5m from Teva’s 2028 issue.

The largest ticket is €8.5m of Ziggo’s 2029 TLB.

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