It’s not a full turn back to risk-off, but some macro clouds came with the April weather. Fears of wider market contagion — either from more West-Coast banking drama (this time First Republic) or the US government debt ceiling showdown — were certainly a factor in mid-week secondary market widening.

But primary’s resilience showed it takes much more than all that to shake up European loans and bonds.

The iTraxx Crossover Index began the week at 440.5bps, peaked at 453bps by Wednesday, and then reversed back to 443.25bps as of Friday, to end the week pretty much flat.

The primary pipeline has been mostly filled with refinancings and maturity extensions, so ramping CLOs in Europe are keeping the roll-over rates high. The technical bid from a lack of new paper — especially in loans — looks set to persist for some time, because new M&A is still lacking amid high costs of capital and economic uncertainty.

However, the current refinancing window might have come to an end for at least a week or two. “I think there are not going to be any deals launched next week, there will be nothing in the market,” said the sellside banker.

The reasons for this pause are multiple. The go-stale date for bond issuers that have yet to report first quarter of 2023 is slowly approaching in mid-May; issuers that miss that deadline can’t come to market with a 144a transaction, the standard for European high yield.

And given the market is mostly London-based, two short holiday weeks — which may bring new rate adjustments from central banks — do not provide a hugely appealing syndication scenario. As such, bankers were rushing to price their deals this week.

Nevertheless, April has still shown that second quarter issuance in the leveraged finance market is picking up, with bond primary especially getting back into the swing. But an effusive reception for new deals is far from assured: investors’ views are becoming more negative as they brace for lower high yield returns, according to Bloomberg Intelligence’s High Yield 2Q Investors Survey.

Some 42% of respondents believe this quarter will not bring a return to positive sentiment, with 11% of investors net negative, compared to 44% net positive in 1Q23.

The cash component of junk portfolios rose to a record 7.1% as investors shunned the asset class. Many expect defaults to rise, and €11.2 billion of index-eligible supply despite high borrowing costs. Rising rates and central bank policy are seen as critical in driving high yield returns.

One firm that sees opportunities in corporate debt is Morgan Stanley, which is among the latest investment banks to attempt to bite back market share from private credit with the anticipated close of a European private credit fund this month, 9fin’s Josie Shilito reported this week.

High Yield Primary

European junk bond issuers continued their successful printing spree with four new deals launched this week. Refinancing revival remained the main theme as three refis came from French equipment rental firm Loxam, German pharma Cheplapharm and Italian pharmaceutical packaging firm Bormioli, alongside one revamped debutant to the market, German automotive and industrial supplier Benteler.

Benteler was one that garnered much of the market’s attention, since in relative value it did not offer just skinny premiums.

Looking at the decent Ba3/BB- rating, initial offer of a double digit yield could to untrained eyes seem an off-the market misprice. But investors were also aware Benteler debuts with an already chequered past and is a highly cyclical name that supplies mostly automotive and energy sectors (86% revenue).

In 2020 Benteler agreed with its lenders to restructure and amend-and-extend its loans. Those have now come for redemption with a revamped capital structure after the company finalised its restructuring programme. New issue premium has also played a part in wider market pricing for the debutant.

“Some people wanted go for it given the yield, but we ended up avoiding due to cyclicality,” said the first buysider.

At the end, the €525m SSNs printed at 9.375% and the $500m SSNs at 10.5%, but tightening a bit from respective talk of mid-to-high 9s and high 10s. Both bonds printed at par and mature in May 2028.

The company at the same time issued a €800m TLA that matures in October 2027 alongside €250m RCF that pays E+450 bps. Read more in 9fin’s Credit, Legal and ESG QuickTake for more. As part of our extended coverage 9fin also published analysis of Benteler’s financials.

Other bond issuers were more resilient and less cyclical companies that managed to easily achieve tighter prints during syndication. The French equipment rental company Loxam (BB-) has won the tightest print this week. Loxam has refinanced its 4.25% senior secured notes due 2024 to 6.375%, now maturing in May 2028. The note printed at par and comfortably tightened from 6.5%-6.75% IPTs.

“Loxam we ended up being positive, even if it is not the greatest from relative value, but PM wanted to keep exposure,” said another buysider.

The market leader in its sector Loxam has increased rental prices and tariffs to battle inflation and keep EBITDA margin broadly stable at 35.3% (vs 35.6% in FY 21 and 36.6% in FY 20).

At the same time, the company launched an exchange offer on its €700m 3.25% senior secured notes due 2025 and €119.6m 6% senior subordinated notes due 2025. The exchange prices were 98.50 and 98, respectively.

LevFin usual suspect Cheplapharm, the off-patent pharma manufacturer, has tapped the market mostly to help fund its acquisition of Zyprexa, an antipsychotic medication. It is also using cash on hand, an RCF drawdown and a vendor loan. Both newly offered tranches came comfortably above the minimum size of €250m, climbing to €425m for SSNs and €325m for the fixed rate piece and both sharpening from already fairly tight initial talk.

The last issuer to use the April’s refi window was the Italian packaging firm for pharmaceuticals, Bormioli Pharma. Rated only one notch above a triple-C mark at B3/B–/B, OID for the refinancing came at much steeper discount than other transaction this weeks.

Bormioli priced €350m of SSFRNs due 2028 at 95.5 and E+550 bps, on the wide end of margin talk between 525 bps and 550 bps but at higher reoffer price from 95 OID at the IPTs.

The new bond is repaying €280m of existing SSFRNs due 2024, 18m of RCF and €26m of bilateral facilities. The remaining will pay the fees and the company put on balance sheet as cash.

The pharma packaging firm also grew its liquidity cushion by increasing the existing RCF to €65m and extending its maturity.

In our Credit QT, we highlighted that Bormioli is strictly tight to volatile resin prices (75% of overall plastic production cost base), while glass-related raw materials include sand, calcium carbonate, borax, soda ash, limestone and cullet. Due to cost inflation EBITDA margin slimmed down to 24.1% in FY22 from 25.3% in FY20 while the firm claims it is still above than selected competitors at 18%.

Leveraged Loans Primary

There were no new loan deals launched this week. As such the loan primary market emptied out for the first time since mid-March when fears of contagion from fall out of SVB and Credit Suisse cast long shadows over financial markets. TMF and Monbake, two leftovers maturity extensions, both convinced the market they can stay in lender’s portfolios for few years more and

TMF Group’s A&E pitch received a mixed response. On one hand the company is backed by high non-discretionary recurring revenues and a sticky customer base with high barriers to entry. Nevertheless some buysiders questioned if the price was right given that TMF’s strained cashflows will have to service double the interest burden the company has been used to - and its dusty documentation is in need of a retouch.

The new €955m TLB (increased from €950) will push the maturity of the existing loan due in May 2025 out to May 2028, alongside a new $400m TLB that replaced the €200m second-lien TLB. Loans priced at 98.5 and 98 with E+ 475 bps and S+500 bps margins respectively, tightened from the OID talk between 97 and 98 for both. The facilities are expected to be rated B2 by Moody’s and B by S&P.

TMF’s credit strength filled the books only with existing lenders, even though leads had gathered interest from new money which at the end decided to not allocate.

Docs cleanse

Existing buysiders’ decision-making have been easier when prior to pricing leads issuer have tightened the original documentation. The previous covenant structure was quoted to be stuck in the more borrower-friendly market of the past.

TMF initiated a slew of docs changes to get amend-and-extend over the line. The margin ratchet — which one buysider had previously labelled “a joke” — has been lowered to two step downs at 4.0x and 3.5x on the euros (versus 4.75x and 4.25x), with one step down at 3.5x on the dollars.

The ticking fee was significantly changed to 0% for 0-45 days, 50% for 46-90 days and 100% from 91 days. Previously, it had been 0% until 90 days, 50% from 91-120 days and 100% after 121 days. TMF also killed off the ESG margin ratchet that would initially cut margin another 12 bps.

The combination of the above metrics was to hard to swallow for some lenders that pointed to very quick margin deterioration post print. The company also has to provide quarterly financials, as well as an annual presentation.

In the original docs, ratio debt baskets permitted the incurrence of any indebtedness on a ‘no worse than’ basis. Now that ‘no worse than’ permission is limited to debt incurred in connection with Permitted Acquisitions or Investments. 9fin has reported the full list of documentation changes earlier on Friday.

The deal was marketed at 4.55x net senior secured leverage based off a €250m of Adjusted EBITDA for FY 2022. That is dressed up from the reported figure by around €25m of exceptional addbacks and €7m of run-rate adjustments.

New and existing lenders were also split on Spanish bakery business Monbake’s A&E, with one slice egged on by fresh recent performance and the other put off by a potentially small portion size.

Created in 2018 by the merger of Berlys and Bellsola, the Ardian-owned business lacked scale for some on the buyside, with new money lenders in particular ready to let this one go stale. Monbake was out to extend maturities out on its €275m 2025 TLB and its €5 2024 RCF to 2027 on both.

The deal was marketed on a December 2022 LTM Adjusted EBITDA of €59.9m and cash of €43m, per buyside sources, giving total net leverage of 3.9x when including another €1m of other debt (such as leases and accrued interest). Its €50m RCF is undrawn.

Pricing landed at E+475 bps, up from the current margin of 375bp, and slightly picked up 98.5 OID from 98 at price talk. Recent performance supported the credit going against the trend of beleaguered Food companies like Labeyrie and Ecotone, which focus on higher price-point goods. Monbake is sheltered from decreased in demand as customers tend for keep buying baked goods (particularly bread) through cycles, said lenders to 9fin earlier in the week.

FY 22 topline exceeded pre-pandemic levels — FY 22 saw total sales of €389m (versus €201m in FY 2019); gross margins of €174m (versus €164m), and EBITDA of €60m (versus €59m), sources told 9fin.

Some buysiders were still put off by the company’s small stature and geographical concentration, with around 95% of sales in Span.

Movers & Shakers

From the European high yield bonds (euro and sterling denominated), Tele Columbus recorded the biggest dive on Friday. The €650m 3.875% SSNs plunged 11-points post the release to new low 66.8-mid quote, as time is running to refinance its May 2024 bonds.

The new management of the German cable operator presented stark results in the Friday’s (28 April) Q4 22 conference call. The company is likely in urgent need of further equity injection as it is burning through cash and Q4 EBITDA almost halved (47.1% YoY).

Despite the terrifying numbers, the management guided a refinancing at the end of the year and for a healthy increase in EBITDA for 2023. When quizzed, new CFO, Dr Jeannette von Ratibor, said that they see EBITDA stabilising above a 40% margin, quite a bit higher than Q4’s 22% margin.

The French retailer Groupe Casino also had an eventful week and it bond prices reflected that. The €900m 3.248% March 2024 senior note had the biggest plunge over nine points to new 30.3-mid quote level.

The company has kicked off informal discussion with creditors ahead of potential restructuring as it is consulting two potential offers, a joint venture between Casino, TERACT and Groupement Les Mousquetaires, and a second from second largest shareholder, Czech businessman Daniel Křetínský.

9fin’s distressed team provided an extensive coverage of the high profile name with a hour long webinar up to replay here.

Swedish debt collector Intrum Justitia also recored a decline, sliding after disappointing interim quarterly results .

The firm has seen its €450m 9.25% March 2028 senior notes slid 2.25 points to 95.97-mid quote this week while the €950m % September 2027 lost almost two points in a week and now at 75.99.

The firm’s shorter tenors also lost value even though fared slightly better. The €800m 3.5% July 2026 and the €600m and €250m notes (both paying 4.875% and due August 2025) all fell around 1.543 to 82.5-mid and 90.6-mid levels, respectively. 9fin reported on Thursday that Intrum’s five-year CDS widened more than two points to 13.5 points up front on the day, moving against that day positive shift in tone for the Crossover index, of which Intrum is a constituent.

The bonds from the German manufacturer of engineered wood products Pfleiderer are also suffering this post the newest earnings release. The company grew topline 2.3% in the fourth quarter of 2022 but EBITDA came down 36.1%, both-on-Y, while net leverage increased by a half a turn to 3.9x compared to third quarter. The company’s €400m 4.75% April 2026 SSNs fell two points to 95.75-mid quote in a week.

HY price decreases

The biggest climb in the market was recorded by the unsecured $300m note from the US PR and publishing software firm Cision. The senior note rose almost 20 points to a new 63.9-mid quote. A trade of $80m of paper had justified the new price for the notes on Wednesday, according to two market sources.

The shorter tenor bonds from the UK were one of the best performers this week in Europe.

The UK gym group PureGym shows its in bulk mode before upcoming maturity wall. The company seen its €-denominated SSNs paying 5.5% tranches lift up almost 2.5 points to 95.42-mid level and the sterling SSNs paying 6.375% growing over 2.1 points to 95.12-mid quote in a week-to-week comparison. Bonds at the highest level since 20 February.

The British fitness chain was able to show off positive FY 2022 before the summer. Pure Gym reported a 58% increase in revenues from FY 21, which saw no revenue in Q1 due to Covid-19 closures, and a 7.8% increase in revenues from FY 19. Margins have struggled to recover however, with adjusted EBITDA for FY 22 coming in well below that of FY 19 at 19.9% and 29.7% respectively.

Senior secured net leverage for FY 22 picked up to 5.4x at year end (vs 5.1x in Q3 22 and 15.1x in FY 21) calculated using LTM run-rate adjusted EBITDA.

The UK frozen food retailer Iceland also had a good week after it provided high level update on its performance, to make up for delay in official reporting due to transitioning between accounting standards.

The management expects to report Adjusted EBITDA at the top end of the previously indicated range between £110 and £120m for the financial year ending on Friday 24 March 2023. This means Adjusted EBITDA of £215m, without the impact of unprecedented energy costs, an increase of over 50% compared with FY22. “Our cash position remained strong, slightly ahead of where we finished FY22,” writes the management in the statement.

The £550m 4.625% March 2025 SSNs picked up 2.3 points to 90.6-mid quote and are on the highest level since mid-March.

HY price increases

The European loan market has softened in some sectors slightly after two weeks of increases. The consumer staples performed the worst with a 0.25 point fall while utilities led the five green sectors this week where all appreciated by a tiny increase around 0.05 points.

The best performer in Europe was the €850m TLB from UK software firm Finastra that is less than a year away from upcoming April 2024 maturity.

The loan rose almost four points to 94.5-mid quote this week, pushed up by the news that owner Vistra is planning to acquire the company with hefty $6bn private credit funding, first reported by Bloomberg. If the buyout would go through, it would sort out the big maturity wall question that is looming over the big capital structure maturing 2024.

The company was downgraded to triple-C by Fitch on 18 April have not managed to grown into the debt stack it build from the 2018 merger of Misys and DH Group and can’t afford rising interest burden, according to a buysider invested.

“They can’t afford to refinance 5bn of debt if you put 10% coupon on it. They can’t afford that. 1.5bn-2bn need to be sorted essentialy at least before may next year,” said the buysider. “It’s over-levered, they are kind of moving sideways with topling and EBITDA since the 2017 merger.

The biggest loser in loans was the Dutch food producer Ecotone who seen its €390m TLB due in 2026 slid 8.2 points to 86.4-mid quote. The loan now sits at the lowest level since November. The company was downgraded to triple-C by S&P Ratings on 21 April as it showed below than expected. Price increases that company put in will only partially offset cost inflation and weaker demand in some of its products that are relatively expensive, and which customers are starting to replace with cheaper alternatives, writes the ratings agency.