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Michal Skypala

The primary leveraged finance market remains buoyant. Deals are tightening during syndication, and selected new money deals are being syndicated as well as more amend-and-extend transactions. Sadly for the large number of euro CLO managers trying to ramp transactions, the new money supply from cross-border issuers is tilted towards dollars.

”I think is cheaper for these issuers, especially on swap currency basis to do the deal on a dollar base,” said a sellside banker.

There’s a very limited new issue LBO pipeline waiting for syndication — but it’s not totally empty.

As reported in January by 9fin, the market is still awaiting the €2.9bn debt package from Advent’s buyout of DSM Engineering Materials , a deal expected to be syndicated in the first quarter. The financing will support the carve-out of IG-rated Royal DSM’s engineering materials business and its merger with LANXESS’ materials business, worth €3.7bn.

There’s also a financing to come at some point to fund the take-private of UK home repair business HomeServe by Brookfield. The take-private closed in January, and according to the public documentation analysed by 9fin the longstop date for temporary bridge financing from Deutsche Bank and Bank of America was 20 February.

Aside from these transactions, banks expect a busy pipeline up until Easter, but made up largely of refinancings.

“We still only going to be seeing A&Es in the first quarter, and do not see proper LBOs to materialise in the first half of the year,” said the banker.

As explored in the last week’s LevFin Wrap, primary remains geared towards loans where the technical bid is stronger and the instrument is less impacted by rates movements. The go-stale date of February 14 means bond issuers who’ve yet to report fourth quarter earnings can’t come to market with a 144A transaction, the standard for European high yield.

Generic pharma business Teva brought the only HY issue in euros this week, part of a $2.06bn-equivalent dual-currency offering across four tranches, with proceeds used to fund a tender offer across six bonds maturing between 2023 and 2026.

All the notes were sustainability-linked, with three targets and a margin increase of 10bps each for missing them. Metrics include increase new regulatory submissions in lower and middle income countries by 150% in 2022-2025 compared to 2017-2020, an increase in ‘access to medicine’ programme product volume by 150% in 2025 compared to 2020, and a 25% reduction in absolute scope 1 and 2 Greenhouse Gas (GHG) emissions by 2025 compared to 2019 as baseline.

The company came to market to sell a recovery story to some buysiders, who had previously shunned the company’s debt in light of its high leverage and connections with opioid litigation, as 9fin’s Bill Weisbrod and William Hoffman wrote in their analysis.

The company is attempting to win investors over with a plan to bring down leverage, which has seen net debt drop from $20.9bn at the end of 2021 to $18.4bn at the end of 2022. Management said the company wants to return to IG status over the medium term.

The pharmaceuticals producer’s pitch seemed to work, as the company upsized syndication of the initial $2.06bn-equivalent bond package to $2.5bn equivalent split between dollar and euro notes in 2029 and 2031 maturities (access our Credit QuickTake and ESG Quicktake). Corporate ratings are Ba2/BB-/BB-. After the successful bond sale, the company increased the tender size from $2.25bn to $2.5bn. 

The €800m 2029s came at 7.375%, the tight end of the 7.375%-7.5% range, the €500m 2031s came at 7.875% (from 7.875%-8%), the $600m 2029s at 7.875% (7.875-8.125%), while the $500m 2031s came at 8.125% (8.125%-8.375%). All the bonds are unsecured non-call life and priced at par.

In the secondary bond market the best performer was UK lender International Personal Finance. The company reported FY 22 numbers this week showing profit before tax of £77.4m in 2021, up 14.3% from last year. The improved performance allowed the listed company to increase its dividend, with a final payout of 6.5p per share (2021: 5.8p). The strong 2022 numbers helped the €341.1m 9.75% 2025 senior notes pick up 5.8 points in a week to 91.1-mid quote.

The second best performer was French PVC manufacturer Kem One, which saw its 5.625% €450m 2028 SSNs up 2.1 points to 84.8-mid quote this week.

The worst performer was German private arcade and casino operator Lowen Play. The company has seen its €250m 7.75% 2025 SSNs slide 6.6 points to 88.5-mid quote.

Aston Martin came out with full year numbers showing free cash outflow of £299m, writes 9fin’s Josh Latham in his earnings analysis. The British luxury car manufacturer is copying with an increasing interest burden, and needs to fund elevated investment activity, which is expected to continue this year. After years of supply chain disruptions and cash burn, there might be a “light at the end of the tunnel” according to management, with the release of a new range of sports cars which will boost volumes and carry a higher contribution margin.

The primary market issuance in leveraged loans remains hot. With euro-denominated paper still scarce, some issuers have been able to tighten pricing even when raising debt for a dividend.

Joining the pipeline this week was British forecourt operator Motor Fuel Group, as it launched an A&E of its £765m and €1.085bn TLBs due in June 2025, with a proposal to extend the facilities until 2028.

Clayton, Dubilier & Rice-owned business is lifting the margin on the £765m loan from 425 bps to S+600bps, with a 95.5-96.5 OID price talk. The €1.085bn tranche is guided at E+ 475bps-500bps (from current E+325bps) and a 97-98 OID.

The deal has a margin ratchet with 25bps cut on both loans if leverage goes under 4.25x and another 50bps tightening with leverage below 3.75x. The corporate and instrument ratings are B2/B.

Fuelling the hot chemicals run, another chunk of the Ineos complex came to market this week, with a short and sweet syndication across the week. Ineos Quattro priced an upsized €850m-equivalent TLB (€750m previously) that will fund a €500m dividend, with the remainder allocated to general corporate purposes.

Issuance was split between €375m and $500m seven-year tranches as US TLB was upsized from minimum $400m size and both loans tightened in syndication. Both euro and dollar pieces were priced at 99 OID (from 98 IPTs) with E+400bps margin and S+375bps+CSA, the tight end of E+ 400-425 bps and S+375bps-400bps talk.

The pricing proved punchy for some accounts: “The deal sounds fine, but we are a pass on pricing. We passed on the Eviosys dividend for the same reason,” said one lender.

Alongside the new issues, Ineos Quattro is also running an amendment process to switch from Libor to SOFR on two existing dollar TLBs, also offering a 10 bps CSA to cover the basis between Libor and SOFR. The amendment requires an affirmative vote of 51%.

One buysider has said to 9fin they were unable to consent to the special CSA amendment request due to internal policies and were “willing to lose on allocations by not consenting”.

While the buyside has been calm about the question of a dividend, lenders quizzed management seeking assurance that none of this money is going towards Ineos founder Jim Ratcliffe’s bid for Manchester United.

“Ineos Quattro is a bit different…not a dividend going into shareholder pockets, it’s going into other ventures they have in autos, energy, more a dividend for general corporate purposes as opposed to lining shareholder pockets,” said second banker close to the deal. “Leverage in the low 2x. [It’s a] company that people have lived with through thick and thin of the financial crisis, they’re going to be good stewards of the balance sheet.”

Lenders on the deal also questioned how the business is positioned in a cyclical industry — read more in 9fin’s preview of the credit.

Another specialty chemical firm in the market was Dutch-headquartered Nouryon. The Carlyle and GIC-owned business (previously known as AkzoNobel Specialty Chemicals) marketed a new $750m Term Loan B to fund a $500m dividend. The new loan has a five year tenor, and was guided with margin between 400bps and 425bps over SOFR with a credit adjustment spread of 10 bps and 98 OID.

In September 2021, Nouryon filed for a US IPO. However, the IPO market was effectively closed all of last year, meaning the sponsor may be looking to other ways to take money off the table.

“They have delivered from the original LBO at 5.9x leverage. They’ve repaid close to $2bn of the debt, decreased leverage to low 4x and they’re only levering it back to mid-4x. It’s still really under-levered.,” said the second banker.

“If anyone has actually earned a dividend they have. Plus it leaves the balance sheet in a position where if the IPO market comes back they’re still in a position to float.”

Existing lenders on Archroma, another speciality chemicals firm, found little to object to in agreeing to its A&E — though final terms have yet to be released at the time of publication. Lenders noted significant deleveraging and a supportive sponsor, but some said the investment case hangs on its retail end-market recovery and — in a common refrain for current A&Es — whether the company can swallow the higher interest costs.

Some questioned why Archroma came to market at this moment, even though its nearest maturities were in August 2024. It recently reported soft December 2022 numbers, which management is positioning as a one-off blip.

“The timing is due to a belief that currently the deal offers good relative value in the market and also some issuers are aware of potential rating changes, and would rather come earlier,” said a third banker close to the Archroma deal.

The deal was marketed on LTM December 2022 adjusted EBITDA of $234m pro forma for the Huntsman Textile Effects acquisition, giving 3.7x total net leverage, said lenders on the deal.

Every bolt-on has integration risk, but Archroma has a good track record of integrating acquisitions and buysiders were pleased the purchase combines the world’s top two players and furthers Archroma’s successful expansion in Asia (over 60% of Hunstman’s revenue is generated there). Even after acquisitions the company has still demonstrated significant deleveraging as its leverage levels have historically hovered in the high 4s or low 5s.

Price talk on the euro loan bumps its margin to E+550 bps, including two step downs, while the dollar piece pays S+525 bps with one step down. Both tranches have OID price talk between 95 and 96. Commitments on the deal are due on Friday.

Dutch metal packaging firm Eviosys carries low leverage and has performed well since it was carved-out from US parent Crown Holding. So it’s little surprise that it became the first loan issuer out with a syndicated dividend deal in the European market this year.

Some lenders did not think the market temperature is hot enough to justify taking money out at this price talk, but the increased size of the offering and accelerated timetable signalled broad acceptance for the move.

On Monday, the company priced a €400m (upsized from initial €350m) TLB paying E+475bps at 98 OID, the tight end of the price talk between 97 and 98.

The UK’s telco and entertainment business Virgin Media is another European-based issuer that chose to hit dollars only for its latest issue. The sustainability-linked $750m term loan due 2031 priced at S+325bp+CSA(10bps) and 99 OID, on the tight end of guidance between 98.5-99 OID.

Virgin Media’s new issue will fund general corporate purposes, including repaying existing debt. The loan’s margin can move up or down based on two sustainability performance targets. These targets are tied to a reduction in absolute scope 1 and 2 greenhouse gas emissions, and reduced use of non-renewable electricity, said a source familiar with the deal.

As 9fin’s Sasha Padbidri put it in her preview, the LevFin primary market in dollars has scored an ESG hat-trick thanks to Virgin Media, with this loan sitting alongside Teva’s sustainability-linked bond and a green loan repricing from TerraForm Power.

The best performer this week in European loans was Spanish bridal wear company Pronovias that has seen its €215m 2024 TLB up almost 30 points to 87-2-mid quote from 48.4-mid where it was last week. Bain Capital took control of the business in January from BC Partners in a debt for equity swap.

The second highest riser was packaging firm Kloeckner Pentaplast which saw its $725m 2026 TLB up nine points to 94.5-mid. The company reported solid FY 22 numbers above the guidance and significantly decreased leverage.

The adjusted EBITDA for the fourth quarter was €66m, a 45% increase over previous year and sales picked up 6%. Adjusted EBITDA for the whole 2022 was €262m, a 12% uplift over 2021 while net sales increased 21%.

Good performance helped cut leverage down more than a turn from 7.8x in September 2022 to 6.7x at the end of the year.

The biggest loser this week in European was German power plant supplier Arvos Group. It saw both its €163m and $200m TLBs due in December this year down 18.5 points to 42.5-mid quote. A piece of Arvos Group dollar TLB on offer on BWIC in early February.

Another struggling company is Australian wine business Accolade Wines (Caa1/CCC+) which has reported corked results for December 2022, with lenders increasingly woozy over the company’s looming 2024 and 2025 maturities.

The business has been hit by supply chain woes, cost inflation and labour shortages following the pandemic, leaving EBITDA languishing and net pro forma leverage now topped up to 7.9x — and lenders with plenty to whine about. Read more in 9fin’s write up by Laura Thompson.

Overall, secondary prices have come down outside of small uplifts in Energy and Consumer Discretionary sectors. The largest decrease was in the IT industry, with an average slide of over 0.5 points.

After big volume lists last week, a €138m-equivalent loan BWIC has hit the market this week on Wednesday. The list likely comes from the call of Alcentra’s Jubilee CLO 2015-XV, announced last Wednesday.

The list had 49 tranches and included four sterling pieces — a £0.3m slug of 2029 TLB and £4.2m equity piece from New Look, £3.347m of the 2024 TLB from QA and £2m of Webhelp’s 2026 TLB. Another equity piece is a €4,300 slug of Haya.

The largest ticket was €6.5m of Diaverum’s 2024 TLB, with a €1.5m piece of the 2025 tranche also available.

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