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LevFin Wrap — DSM to resurrect post-Easter primary, CLO debutants play early A&E game
Michal Skypala
•6 min read
This clarifies an earlier version of the LevFin Wrap published earlier today which stated that DSM Engineering is actively pre-marketing a transaction expected to launch post-Easter. Since publication we subsequently learned that the DSM Engineering privately placed its TLB on Friday (31 March).
The leveraged finance primary market had a short week in Europe and unsurprisingly, activity has been muted. However, although most market players are already away, plotting their most challenging hiding spots for the chocolate egg hunt, one European issuer tapped the market again in 2023 with an early hot cross bond.
In the biblical steps of the Lord and Saviour, primary is now expected to resurrect next week, with a flow of European deals hitting investors screens on Tuesday.
Muted M&A pipeline outlier DSM Engineering Materials’ has privately placed a €2.9bn debt package backing sponsor Advent’s buyout, first reported by LevFin Insights and confirmed by a source familiar with the situation. The first real European LBO of 2023 priced €1.15bn in euros and the balance in dollars at a 550bps margin over Euribor and SOFR, respectively, at a 90 OID.
Barclays, BNP Paribas and UBS were the main underwriters on the deal. Sponsor Advent took €450m of the debt, using leverage, with the interest on their portion paid as PIK, to improve DSM’s cash flows. The transaction was marketed off 4.3x senior secured leverage.
The financing supports the carve-out of Royal DSM’s engineering materials business and its merger with LANXESS’ materials business, worth €3.7bn. 9fin first reported in January that the debt package had been slated for syndication in the first quarter.
Easter Bunny, hurry up!
Another sign of the Easter mindset was that both loans in the market priced earlier that expected this week.
The French independent content producer Banijay, the only euro-denominated print this week, was the golden egg for buysiders. The company that birthed some of TV’s most notorious shows such as Big Brother, Deal or No Deal, Survivor and Peaky Blinders, earned a decent upsize of the initial syndication, while the final print priced tighter from the original price talk and commitments were successful brought four hours forward.
The $560m TLB due 2028 shaved off 50bps from the initial talk to come at S+375 (with 10bps CSA), while the OID still tightened to the 98.5-99.0 range (from 97.0-97.5). The tranche was upsized from an initial $450m in size. The euro piece also fared well. The €555m TLB due 2028 (upsized from €453m) is guided to price at E+450 bps (from E+465bps) and in the 98.75-99.0 OID range (from 98.0-98.5).
Good growth, steady returns visibility with limited cyclicality, and a healthy implied equity cushion made this A&E extension an easy consent to the banker’s call for buysiders that spoke to 9fin.
The auto glass repair and replacement company Belron has also received strong feedback on its US dollar dividend recap loan, with buysiders noting the company’s expanding margins and recently awarded investment grade rating.
No bugs were found on this windshield, as it has also brought forward the commitment deadline of its best-efforts syndication of an €800m-equivalent ($870m) almost a day earlier to Wednesday at 5pm ET.
Led by BofA, loan from the Luxembourg-headquartered business firmed at S+375bps +10bps CAS) from SOFR+300-325bps talk while OID also tightened too to 99.5 from 98-98.5 OID.
Proceeds, along with balance sheet cash, were to fund a dividend of around €1.1bn to Belron’s owners — Belgian auto repair company D’Ieteren Group — as well as private equity firms CD&R, Hellman & Friedman and BlackRock, who own minority stakes. Debt-funded dividends are often a hard sell for buysiders and rating agencies. Indeed, the new deal would increase Belron’s leverage to 3.75x, from 2.95x at the end of last year — and yet, the company was yesterday upgraded to BBB- by S&P.
On the bond (buns) side, Telecom Italiapriced a €400m tap of its 6.875% February 2028 bond on Tuesday, which printed initially this January. The Italian telecoms business managed to price at 100.75 from early price talk of 100–100.50.
The original deal, a €850m 6.875% February 2028 bond, came on 20 January, and was at the time the largest refinancing transaction seen in the euro high-yield market in months. The new tap dragged secondary quotes of the original bond down, with the bid now coming closer to the new print at 100.8 from over 102 beforehand, according to 9fin data.
Early A&E bites
Once again, the European CLO and leveraged loan market gathered this week at Hilton London Bankside for the IMN’s 10th annual conference on Tuesday.
It was a less eventful day than last year when the 2022 edition saw the largest LBO in history announced during the event in the case of Elon Musk’s Twitter bid. But it was still a fruitful gathering, with the not-really-fully-functioning market enough of a conversation starter.
Muted loan supply and volatility was certainly a big theme throughout, as was the parlous state of CLO arbitrage, fear of downgrades, lack of CLO equity investments and diverging opinions as to when, exactly, the market will enjoy more stable conditions. Some were looking over to post-summer deadline for a bigger M&A restart and pickup in primary, others believe that volatile market is the new normal and here to stay for a while.
With the lack of new paper, A&Es are the new buzzword. Multiple CLO managers (and especially new entrants ramping up their first issues) have confessed at panels and on the sidelines to now actively mapping out secondary market for a potential A&E candidates with maturities as far out as 2027.
By buying in prior to the A&E launch, lenders can join the deal at the outset rather than waiting for space in the upsize or in the case where initial investors decline to roll-over.
The strategy has been adopted widely by CLOs in ramp up, hungry for new paper in a primary that has been scarce on new issues for the whole first quarter. It is also an efficient strategy for new entrants to accelerate a struggling ramp up.
“If we are not in them, we buy in weeks or months before at 98 or even close to par, if we believe in the credit and expect at least an A&E in the future. We feel it is a good value benefit,” said a portfolio manager at a CLO house noting that the 2023 A&Es were about 3.5% of the universe but their stake is now over 5.2% in them.
Movers & shakers
In secondary moves, the biggest resurrection in euro-denominated high-yield bonds this week was the Italian power plant specialist Ansaldo Energia. It has seen its €350m 2024 senior note paying 2.75% rise over 3 points to 95.1-mid quote from 91.29 in a week. The board of directors approved late afternoon last Friday its new industrial plan up to 2027, giving the go-ahead for reinforcement of the company’s capital.
The company’s debt plunged in October 2022 to the high 70s after it announced large writedowns related to gas power plant projects. The restructuring ended in a capital increase of €550m.
The Czech gas transmission operator EP Infrastructure also had a good week. Buoyed by a positive earnings update, the €500m October 2028 senior notes paying 2.045% picked up 2.8 points to a 78.8-mid quote and the €600m July 2026 senior notes that pay 1.698% gained 2.5 points to the 86.5-mid level. The company reported this week a 42% increase in sales and 30.2% in EBITDA Y-on-Y in the second half of 2022, as well as deleveraging more than a turn down to 2.9x total net.
The biggest loser in bonds was the aforementioned Telecom Italia, whose bonds were dragged down by the new prints.
On the loan side, the price of French customer experience and business outsourcer WebHelp’s loanscontinued to rise for a second week in row. This week its £125m TLB due in August 2026 caught up with its M&A announcement, rising 5.6 points to 99.4-mid level on Wednesday. Business services provider Concentrixannounced on last Wednesday it has entered into an agreement to combine with WebHelp in a transaction valued at approximately $4.8bn, including net debt. S&P has placed the company on positive ratings watch following the acquisition news.
After a two-week pause with no lists, a c€43m loan BWIC revived the secondary market all the more, with bids due on Wednesday at 1pm UK time.
The list had 40 loan tranches including two sterling pieces — £1m tickets from telecom infrastructure services provider M Group Servicesand pharmaceutical business Stada.
The largest tranches hit only €1.5m in size, and come from French laboratory service provider BioGroup LCD, German market research firm GfK, French biometrics identity verification provider Idemia and Swedish security system provider Verisure.
