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The European leveraged finance market split on diverging paths following the half term break. Loans primary is on a steady A&E streak backed by a strong CLO technical bid while the secondary market has been flooded with rush of BWIC activity. On the other side, the high yield market is taking a breather, with no new deals marketed this week.

The only European HY deal was a privately placed €195m SSFRNs due 2029 from Italian analytics firm Cerved that came at E+525 and a 98.76 OID

Strong PMI (Purchasing Managers’ Index) data coming from Europe this week pulled market indices back and credit spreads up, reigniting fears of higher rates. This dynamic was especially acute in high yield since bond trading levels are generally more affected by increased volatility in rates. It’s no surprise, therefore, that issuers are shying away from the bond path for their refinancings or maturity extensions.

“Bonds were little bit more unsettled this week and that is also coming from the more material move in bond pricing in the US,” said a sellside banker. “Loans are less exposed and, thanks to strong technical bid, they are avoiding the gravitational pull as the bonds move. Only time will tell if that will sustain or we will see delayed effects on loans too.”

Ramping up CLOs are still clearing out A&Es for issuers, looking for the benefit of par-to-par rollover with a corresponding margin increase. Some names have been slowed down by waiting for full financials, while other hairier credits are seeing if the market has improved enough for them to try their luck again.

“There are some performing credits left to place and some bumpy names that need the market to materially improve, or cannot do conventional financing without new junior capital or other strategic reorganisation,” said the banker.

A buysider agreed that sweeteners are needed for overly levered credits.

“There are a few situations where you get a good business and it needs to be refinanced but the cap structure is too levered. What do you do in this situation? It needs a second-lien or a PIK to get the A&E through,” they said.

Some deals that tried to get done previously are being shown behind closed doors, “but nothing really exciting, it is mainly add-ons and A&Es,” a CLO manager noted.

Buysiders are mostly quoting €200m to €400m-sized deals in their rumoured pipeline, but there are whispers that appetite for how much new paper the market can swallow has increased to €500m or even €600m, said a second buysider.

But M&A supply to fuel LBOs of size is still thin, as banks remain cautious on underwriting after taking heavy losses in 2022. A few peer-to-peer sales are live but even if they closed today, they would still not come to market for at least another six months because of regulation.

“Valuations are not there and sellers can’t get a good return,” the first buysider said. “So sponsors are hanging onto their assets and waiting for the last minute to do anything.”

Sellside, meanwhile, is in competition with direct lending on new deals and some have slipped from the syndicated market.

“In underwriting dialogue with sponsors, we are mostly lacking deal flow and on every deal we are getting compared with direct lenders in a two-street process,” said the sellside banker.

Direct lenders definitely proved themselves as a competitor in 2022, taking hefty portions of hung LBOs onto their balance sheet. Since then, their fund-raising cycle has also muted, with less investment from LPs and their lending more selective on “what in theory they would be spending their capital on,” the banker added.

Pricing on direct lending underwrites have tightened to E+650bps/700bps and 97 OID with a covenant, from E+725bps and 97 OID at the end of 2022, according to the sellside banker.

Elsewhere, the high yield secondary market is feeling bit of trading fatigue. The market eagerly awaits refreshed earnings figures for credits to see if an improving macro picture will also materialise in individual credit performance.

“The high yield market went up maybe six points in January, but that has already come down maybe three to four points, so there haven’t really been that many gains,” said one trader. “Everyone’s trading the same risk so trades have been super overcrowded.”

The hope is that an upcoming heavy earnings calendar should create some dispersion and start showing real discrepancy in prices, which is what the market needs right now, the trader added.

Norwegian cruise operator Hurtigruten was the best performer in high yield this week. Its €50m 2022 Senior Notes picked up 7 points to 100.3-mid quote and €300m 2020 SSNs 4.5 points to 91.8-mid quote.

The company announced on Tuesday that it secured €200m of fresh debt from AlbaCore to refinance its existing €176.5m in term debt maturing June 2023. The new loan pays E+600 bps in cash and E+600 bps in PIK (payment-in-kind), ranking pari passu with existing debt. Hurtigruten’s shareholder TDR also agreed to provide an additional €80m of funding, including a €25m shareholder loan.

On the back of the new liquidity injection, combined with upticks in bookings, Hurtigruten has asked lenders to extend its €655m TLB loan to February 2027 and €85m RCF to February 2026.

The company will release its fourth quarter earnings on Tuesday followed by a lender’s call on Tuesday at noon CET.

US software firm BMC Software continues rise and has seen its €301.5m 2026 senior notes pick up 2.7 points to 96.1-mid quote on the back of a recent IPO filing.

The worst performer this week in high-yield bonds was the Dutch metal packaging firm Eviosys. The company is currently being scrutinised by investors as it is in the market with a TLB extension, alongside a significant dividend (on that more below). It’s €375m 2029 senior notes has lost almost three points, sliding again under 80 to 79.94-mid quote, the lowest point since the end of 2022.

Excluding stressed credit (defined as spread to worst >15%), the following euro-denominated fixed-rate bonds saw some of the biggest week-on-week moves in prices, according to 9fin’s European price moves screener:

Following the Isabel Marant bond deal, dividend recaps have also made a return to loans, already cropping up in two deals. Sponsors seem to be confident that a strong technical CLO bid will help them take some reward from the market.

UK chemical giant Ineos Quattro is tapping with a €750m-equivalent TLB split into euro and at least $400m US dollar tranche that outside of general corporate purposes will also pay a dividend.

The euro piece is talked between E+400bps-425 bps and the dollar tranche is guided at S+375bp-400 bps with a 10/10/10 credit spread adjustment. Both tranches are offered with a 98 OID.

The new loan comes after parent company Ineos successfully printed a €2.6bn-equivalent refinancing last week, adding €600m to the initial €2bn target.

The second dividend recap is from the aforementioned Dutch metal packaging firm Eviosys. The business is marketing a €350m TLB paying E+475bps with price talk between 97 and 98 OID. The non-fungible loan will mature in August 2028 in line with existing debt. Proceeds will be used to streamline a €347m cash dividend that irks some of the lenders.

“We don’t like it mainly because the sponsor has a lot of equity out. We like a little bit of skin in the game,” said one buysider following the deal.

KPS Capital Partners is main sponsor with 80% equity alongside its previous owner and peer, US metal can manufacturer Crown, that owns the rest. This new shareholder reward comes off the back of a €125m dividend at the end of fourth quarter, meaning that sponsor will have taken back €472m of their original €700m equity from the LBO carve out in 2021.

Eviosys (formerly Titan) performed well since carve out from Crown, with sales growing from €1,974m in March 2021 to €2,675m at the end of last year, according to a second buysider looking into the deal.

The non-fungible loan will mature in August 2028, the same as the existing TLB. Price talk is 475bps over Euribor with a 0% floor and 97-98 OID. Even the dividend recap will keep leverage muted at 3.5x total net, coming down from 5.9x when 2021 LBO came to the market.

Even though it has performed well, another buysider sees leverage as understated. “It’s coming when EBITDA and cash is at a peak and both will decline in the first quarter,” they said. More to follow in 9fin’s preview of the credit early next week.

Another deal expected to print next week is Swiss chemical business Archroma. The company is out with $850m-equivalent A&E split between its euro and US dollar TLBs due in August 2024, proposing extension until June 2027.

The euro loan bumps margin to E+550 bps while the US dollar piece pays S+525 bps. Both tranches came out with OID price talk between 95 and 96.

Archroma produces chemicals used for special effects on textiles and is exposed to fashion retailers. The company already reported end of the year figures corresponding to first quarter of its financial year showing weaker performance due to destocking for the fashion and retail segment, said a buysider familiar with that credit.

“They say it is a technical one-off and they will be able to come back in coming quarters,” the buysider said.

The company was also praised for solid ESG credentials. It does not only rely on fashion clients but also creates solutions for wallpapers and furniture and has a paper and packaging segment. Archroma is also in the middle of recently announced acquisition bid for Huntsman Textile Effects, expected to close on 28 February.

“Archroma has done decent job materialising synergies, but leverage could be punchy pro forma Hunstman acquisitions,” added the same buysider. More to follow in 9fin’s preview of the credit next week.

The biggest story of the loan secondary market was the 2023 record volume of BWICs that flooded trader’s screens this week. All together, over €500m of paper was on offer between €140m and €79m lists on Wednesday at 1pm and 2:30pm, a €119m list due Thursday at 1pm, a €67m BWIC is due Thursday at noon and a €96m list is due on Friday at 1pm UK time.

The sudden influx of paper raised questions around who is behind these hefty liquidations and if it is still tied to the Anchorage’s sell-off of the Birch Lane Capital’s equity positions. Seller rumours varied and included CLOs unwinding a partially ramped warehouses or two and one liquidation from a separately managed account, according to two buysiders.

“My understanding is that these are some warehouses that were ramping up and are now being unwound,” said a third buysider.

Not much colour has also been disclosed on the execution. The market started weakening in the second half of the week and initial lists have held better engagement than the later ones, said a second trader.

“I heard from one bank that a lot traded below bid or just inside the bid over all. Another bank said 95% if the first one traded within bid-mid,” said the trader.

The largest item that came on the lists was a €13.4m piece of the 2027 TLB tranche from the troubled oncology player GenesisCare as the newest earnings of the Australian cancer treatment chain continued to disappoint, which 9fin reported earlier in the week. The company is expected to run out of money this year if the current trajectory for EBITDA and cash generation continues, said lenders.

GenesisCare reported $24m Adjusted EBITDA for Q2 22/23, which ends 31 December 2022. This was up from $17.3m in same period in 2021, but down on a quarter-on-quarter basis from $36m in Q1 22/23 (end Sept 2022).

The latest LTM Adjusted EBITDA lands at $51m, a figure which puts net senior secured leverage at 31x. This may overstate the health of the business, as the reported (not adjusted) LTM EBITDA figure at the end of the quarter was just $27.2m.

One best performers this week was aforementioned Hurtigruten, whose loans followed same suit as bonds and picked up on the refinancing news. The €575m TLB due in February 2025 picked up almost four points in a week to 89.9-mid quote, and the €25m and €105m June 2027 TLBs have raised 4.4 and 6 points to 93.9-mid and 99.5-mid quotes, respectively.

The worst performer was the UK/Belgian perimeter security specialist Praesidiad, which saw its €290m October 2024 TLB slide over 17 points to 61.5-mid quote.

On the industry level, the Utilities sector posted the biggest slide at 2.5 points while Consumer Staples was the only industry that picked up, just over a 0.1 point.

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