“Conditions are pretty constructive right now. Issuers are keen on cleaning up RCFs, terming out facilities, and on extension trades,” said a sellside source.

The early stirrings of potential M&A are also in the works, but any financings are likely to arrive in primary no earlier than late in the second quartet.

“A lot of plans are being dusted off and banks are thinking about underwriting again,” added the sellside source.

Recession fears from start of the year are fading out, with additional good news on the inflation front, as German CPI numbers were almost one percentage point under expectations at 9.2%, a five-month low.

“Better resilience out of Europe economies, the drop in gas usage, and strong performance in industrial sectors has given people confidence that a recession is not going to be as cataclysmic,” said a buysider.

Looking at the better macro horizon, some would even say the market has been slow to reprice.

“The mood in the market still feels out of step with the macroeconomic data we are getting in,” said a second buysider. “Some so-called cyclical credits are unfairly maligned at the moment, given the latest view on the direction of travel. Why are we positioning these as cyclical when in fact there’s not going to be a recession?

So if the market fully prices out the recession, how long will the rally last and how far can it go?

UK chemicals giant Ineos Group has successfully printed a €2.6bn- equivalent refinancing, adding €600m to the initial €2bn target. The increased deal volume didn’t stop the leads tightening pricing, as the €400m and $425m SSNs priced at par at 6.25% and 6.75%, respectively, from initial thoughts of 7-7.25% on the euros and low 7% area for the dollars.

The $1.2bn and €700m TLBs paying S+CAS+350bps and E+400bps priced with 99 and 98.5 OIDs, tightening from 98.5 and 97-97.5 IPTs, respectively.

Ineos received a warm reception, despite recent underperformance. The deal was structured on a Q4 trading update that showed EBITDA down across the three segments, with O&P North America down 49.1% year-on-year with O&P Europe down 61.9%, and Chemical Intermediates segments down 48.6%. The strains on earnings is mainly down to lower volumes, driven by the need to destock and an overall economic slowdown. Find more detail on the credit in 9fin’s Credit, Legal and ESG Quicktakes.

“We’re not taking part in it this time, we suspect that the price will come down on this one soon and we’re hoping to buy it cheaper. Tightening I think is just a function of market technicals and a lack of primary,” said a third buysider.

The eagerness for paper helped keep docs unchanged and no pushback was raised to tighten current documentation, according to a source close to the deal.

“My main beef is with the run rate addbacks that are missing a quantitative cap. They usually keep costs tight and avoid adding back but it looks like they will now have big items to add, so I’d want to push against that, but everyone seemed to be happy to roll over,” said a fourth buysider.

On the back of buysiders’ minds was also Ineos owner’s Jim Ratcliffe’s potential bid for football team Manchester United, and whether this will mean extracting cash from Ineos.

Since Ineos Group already took out a €300m dividend in 2022 and the company is faced with a big capex project it would be “really aggressive” to take any money out towards a bid for a football team, said a third buysider.

"Every comment on Ineos is 'big dividends to pay for Manchester United' but no one even asked about it on the call. The 6.875% [talk on the euro-denominated SSNs] is not bad for a dull credit. In Europe, dull should be like 5%, so it's coming cheap to fair value,” said a fifth buysider.

Meanwhile, Bloomberg reported that the bid for Manchester United is backed by its own funding package from Goldman Sachs and JPMorgan,

Ineos’s ability to keep its existing docs package in place is out of line of a recent trend that’s seen buysiders successfully push back on some docs points.

Laura Thompson has reported this week that 90% of deals that came to market in Janaury saw improved documentation, either on existing docs (if, say, an A&E transaction) or compared to late 2022’s standard.

Elsewhere in the primary bond market, French fashion brand Isabel Marant used the strong market backdrop to print a refinancing, which also included a €60m dividend.

The bonds priced at 8%, the tight end of the 8-8.25% talk, from mid 8s IPTs. The 5NC2 SSNs were increased by €15m from the initial €250m offer.

The success of the dividend offer has also spurred conversations over whether more issuers will brave the market for larger divi deals.

“We are having these conversations with issuers but it is really credit specific if they can be done,” said a second sellside source.

Some were still concerned though if they are being paid enough for the risk. “We passed because of the fashion risk and not enough yield,” said a sixth buysider. Read more on Isabel Marant credit at 9fin’s Credit and Legal QuickTake.

Lastly, French telecommunication provider Iliad also successfully tightened its newest seven year €500m SUNs print to land at 99.296 with 5.625% coupon, giving 5.75% yield from 5.875% IPTs, on a book of more than €1.1bn at the final spread.

Movers & Shakers

The new primary supply from higher quality businesses is helping the overall market pick up in secondary. High yield has seen better price performance than loans.

“It benefits the whole curve to show that there is market access, which could create demand,” said the first buysider.

The 2026 senior notes paying 3% from German real estate group Adler Real Estate picked up the most this week gaining four points to cross over 80-level at 80.27-mid quote.

Its parent company Adler Group UK’s restructuring convening hearing is slated for next week. Chris Haffenden explains in today’s Friday Workout that the 2029 bonds are opposed to a plan to use €937.5m of senior secured funding from an ad hoc noteholder group to primarily repay the 2023 and 2024 maturities of the subsidiary, Adler Real Estate.

The second best performer was another property firm, Peach Property Group. The 2025 senior notes paying 4.375% rose 2.8 points to 82.23-mid quote as the company is still riding on the 2022 preliminary figures. The firm’s latest trading update showed €18-€19m result from their funds from operations, the best in the history of the company, alongside a 5% rental growth.

The biggest price fall among euro-denominated bonds came from US women’s health pharmaceutical firm Organon. The €1.25bn SSNs due 2028 paying 2.875% fell over three points in a week from 90.9 to 87.62-mid quote. The company is expected to report Q4 earnings next week.

Second worst performer in the euro-denominated universe was was US aluminium manufacturer Novelis, whcih saw its €500m 2026 senior notes paying 3.375% slide 3.2 points to 85.17-mid quote. Bonds slid due to Q3 earning update showing the company sales coming down 2.9% YoY, EBITDA decreasing 32.6% and company adding 0.3x leverage to the current 2.6x net level.

Excluding stressed credit (STW < 15%), the following euro-denominated fixed-rate bonds saw some of the biggest week-on-week moves in spread to worst (STW) terms, according to 9fin’s European price moves screener.

HY spread risers (price declines)

HY spread decliners (price increases)

Leveraged Loans Primary

Primary supply in loans is still suffering from the market downturn in 2022. Despite the positive momentum, the pipeline is still lacklustre because of tighter underwriting standards and a lack of new M&A activity.

“Loans are coming through in drips and drabs. Bankers aren’t looking at new opportunities as aggressively as they have before,” said the first buysider.

A&E extensions and add-ons to fund bolt-on acquisitions for well regarded existing names will remain the main primary play.

“Fresh M&A activity, there’s a little less of that, but any conversations help to show there are possible avenues for financing,” added the first buysider.

Two new deals joined the primary pipeline this week. UK temporary power supply firm Aggreko is raising around £361m-equivalent of new loans, split between a €130m fungible add-on and $300m non-fungible TLB.

Aggreko will use the funds, alongside a £132m equity contribution, to finance bolt-on acquisitions of UK’s Crestchic (£125m) and US Resolut ($440m) for a combined enterprise value of around £480m.

The euro loan pays E+525 bps in line with the existing TLB, with OID guided between 96.5 and 97 while the non-fungible US facility is offered at S+550bps and 94 OID. The deal is structured on £527m PF LTM September 2022 EBITDA giving 4.4x net leverage pre-M&A and cost outputs, and on £717m EBITDA range and 3.7x net leverage post the acquisitions and cost outputs.

Another UK issuer, environmental consulting firm ERM, is also in the market with $200-250m equivalent euro-denominated TLB add-on fungible with an existing €47m TLB2 tranche. OID talk is yet to be released.

More UK issuers may follow, as Sky News reports that UK holiday operator Parkdean Resorts is considering a £600m refinancing of 2024 borrowings with Barclays and Bank of America running the deal. It would be the first significant sterling refi to hit the market this year.

Small sterling stubs from 2022 UK hung deals Morissons and Ekaterra have already appeared in the market in the past weeks testing the appetite for sterling paper.

“The market as whole is a lot better than before, and that also goes for sterling, but doing a whole sterling syndication is still largely undiscovered, and would be a pricing exercise for us,” said a second sellside source.

Speaking of former pulled deals, second time’s the charm for Dutch artificial grass producer TenCate Grass (TGC), which is raising an add-on to fund the already closed Hellas acquisition. The final talk on the €274.3m paying E+500bps is a 93.5-94 range, up from the 92-93 IPTs and compared to 90-91 OID when it was pulled in early October.

Improved marketing numbers for the relaunched offering definitely helped as TCG has been able to show the benefits of the Hellas integration, although some on the buyside question the sustainability of the improvement in a potential downturn. Read more in 9fin’s preview of the deal.

Loans Secondary

Secondary loans were almost all green this week. Across the industries, consumer staples prices increased the most with almost 0.5 points pick up, while the financials performed the worst adding only 0.13 points overall.

“In secondary a lot of babies were thrown out with the bath water,” said the first buysider. “There are a lot of really nice companies that got beaten up, but we’re seeing them come back again.”

Only five weeks into 2023, the secondary loan market is on a good trajectory and there is still enough liquidity for a lot of names to recover, adds the first biysider.

The troubled Australian oncology provider Genesis Care was the worst performer this week as it saw its €400m TLB fall over 7.5 points to 29-mid quote. A €1m slice of the tranche was offered on a BWIC due last Friday, and traded in the low 30s, according to a CLO manager. 9fin reported last week on buysider concerns about the latest batch of earnings.

UK cinema chain Vue saw its loans head in the opposite direction, with the €634m and €114m TLBs up 7.5 points to a 60-mid quote. The Group’s restructuring closed a couple weeks of ago but a request was received by Credit Derivatives Determinations committee to identify whether a restructuring credit event had occurred. The decision is awaited on Monday.

The Triton-owned German indoor air solutions business Flakt Woods sent a A&E proposal to existing lenders late Wednesday evening, according to a lender. Its €300m facility matures in October 2023, but prices rose 4.2 points to 81.5-mid quote this week. There’s rumoured to be a sponsor equity injection with a co-investor as part of the deal.

A €93m BWIC hit the secondary market with bids due on Wednesday at noon UK time this week. The list totalled 61 names, including a mixture of euros and sterling, as well as loans and bonds. The largest tickets from come from from GHD, ION Corporates and ION Markets, offering a €5m tranche each. Read full list here.

Bids were also due Friday at noon for €17.6m portfolio of loans and bonds. The list included three small stubs of Dexko 2028 TLB, €3.4m piece of McAfee 2029 TLB and €3.8m slices of Hunter Douglas and Cheplapharm 2029 TLBs. Two FRNs on the list were €3m pieces of Cedacri and Cerved.