Market Wrap

LevFin Wrap — Glimmers of hope for primary issuance as HY market rallies

David Orbay-Graves's avatar
Kat Hidalgo's avatar
  1. David Orbay-Graves
  2. +Kat Hidalgo
13 min read

A ripple of optimism coursed through European high yield markets this week as ECB dovishness buoyed a rally in secondary, while Cirsa placed its bond refinancing offering at lightning speed and garnered sufficient demand to upsize by €75m.

Cirsa priced the €425m 10.375% 2027 senior secured notes at 98.105 for a yield of 10.875% on Wednesday, one day after launch. The Blackstone-owned Spanish gaming operator whispered the SSNs in the low- to mid-11% area, before guiding in the 11-11.25% area.

Proceeds of the deal will be used to repay a portion of its €563m-outstanding 6.25% SSNs due December 2023. As reported, Cirsa highlighted in its bond marketing materials that it has liquidity to mop up any remaining 2023 SSNs.

Deutsche Bank was left lead, taking the role of joint global coordinator and physical bookrunner. Barclays, BBVA, Credit Suisse, Jefferies and UBS joined as joint global coordinators and joint bookrunners.

Despite the apparent opening of an issuance window, Cirsa was the only bond to come to market this week. Partly this is explained by a dwindling pipeline of LBO deals that require syndication, agreed two syndicate bankers speaking to 9fin today.

A Thin Pipeline

Potential LBO syndications (either bonds, loans or both) on the horizon include DSM Engineering MaterialsEngineering Group and Ekaterra Tea, said both bankers. There also remains the overhang of Morrisons’ debt to be placed, added one of the bankers.

Dutch conglomerate Royal DSM is spinning out DSM Engineering Materials, having announced in May the sale of the unit to a joint venture comprising PE firm Advent International (60%) and Cologne-based chemicals group LANXESS (40%) at an EV of €3.85bn.

The unit accounted for €1.5bn of DSM’s 2021 total sales and €334m of Adjusted EBITDA. Transaction completion is expected in H1 23, according to the company press release.

Given the large capital structure, the financing package may feature both bonds and loans, though it is too early to have been determined, said the first banker. Issuance could end up being cross-border, with a USD element, which would boost the buyer base.

Elsewhere, Unilever announced in July the completion of its sale of Ekaterra — which owns household-name tea brands such as Lipton, PG Tips and Pukka — to PE firm CVC Capital Partners for €4.5bn on a cash-free, debt-free basis. Financial close is set for H2 22. Banks are reportedly sitting on €1.5bn backing the acquisition, which is yet to be syndicated.

Lastly, Italy-based Engineering Group, owned by PE firms Bain Capital and NB Renaissance, is now crystallising its financing package for an acquisition, noted both the bankers, neither of whom identified the target.

Although unconfirmed, it appears likely the target is Milan-listed Be Shaping The Future, which Engineering said in June it had entered a binding agreement to purchase c. 43% of from consortium of shareholders for around €200m.

A stake sale triggers a mandatory tender offer for the remaining outstanding shares. Given technical difficulties for Italian entities to issue loans, the financing is likely to be structured in bond format, noted the first banker.

In spite the week’s positivity, the overarching challenges remain the same, said the second banker. For fixed income investors in particular, the ongoing guessing game over what central banks are planning — “Will they, won’t they?” — continue to cause problems.

Aside from the handful of LBO financings left to place, the pipeline largely consists of refinancing or amend-and-extend type deals, said the second banker. 9fin published a summary of some of the innovations recently undertaken to get such deals over the line.

Issuers are now grappling with the new reality, which means paying up to get deals done, said the banker. For example, Verisure’s recent refinancing saw the well-liked credit price its €500m 2027 SSNs at 9.25%, versus a 3.5% coupon on the original debt.

To sidestep the issue, CFOs are increasingly investigating alternatives to the debt markets such as asset sales or equity injections from sponsors, the banker continued, who added that there are relatively few major maturities in 2023 that will force issuance.

High Yield Secondary

Secondary enjoyed something of a relief rally, despite yet more HY outflows this week — $367m from Euro HY and $1.34bn from Global HY, according to BofA Global Research.

Risk appetite is starting to filter back, said the first banker, albeit not unbridled: “Investors are more constructive in general, though there’s still a question of pricing.”

At time of writing, the five-year spread on the iTraxx Crossover index had tightened nearly 50bps on the week to 554 bps. This compares to a year-to-date high of 672 bps in late-September immediately following then-Prime Minister Liz Truss’ disastrous mini-budget.

A subtle shift in tone from the ECB following its council meeting further boosted investor confidence. The central bank yesterday hiked rates by 75 bps — in line with expectations. Five-year bund yields fell 27 bps to 1.82% following the hike, before widening to 2% today.

President Christine Lagarde’s comment that the central bank is not “oblivious” to the risk of recession have been taken to mean the bank will steer a less aggressive policy path.

Additionally, the post-meeting press release noted that the ECB said it “expects to raise interest rates further”. This compares to the more definite language used in its September statement, where the bank said it would raise rates “over the next several meetings”.

Movers and shakers

Excluding distressed credit (cash price > 40 cents, YTM < 100%), the following European bonds saw some of the biggest week-on-week moves in spread to worst (STW) terms, according to the 9fin’s European price moves screener.

Price decliners

  • ProGest €250m 3.25% 2024 senior notes STW rose 6.38 pps to 31.0%, cash price fell 6.50 pts to 57.0-mid
  • Tele Columbus €650m 3.875% 2025 secured notes STW rose 3.53 pps to 17.3%, cash price fell 5.40 pts to 70.6-mid
  • DIC Asset AG €400m 2.25% 2026 senior notes STW rose 2.38 pps to 15.8%, cash price fell 4.41 pts to 57.7-mid
  • Demire €600m 1.875% 2024 senior notes STW rose 2.03 pps to 23.0%, cash price fell 1.98 pts to 66.0-mid
  • Diebold Nixdorf $700m 9.375% 2025 secured notes STW rose 2.04 pps to 18.0%, cash price fell 3.05 pts to 74.5-mid (Downgraded to CCC by S&P, A&E with $400m of new super senior)

Price risers

  • Groupe Casino €800m 5.875% 2024 secured notes STW declined 4.99 pps to 6.9%, cash price rose 5.46 pts to 96.6-mid (Tender launched on 2023 bonds)
  • Adler Real Estate €300m 2.125% 2024 senior notes STW declined 3.45 pps to 28.1%, cash price rose 3.08 pts to 72.2-mid
  • Saipem €500m 2.625% 2025 senior notes STW declined 2.91 pps to 4.1%, cash price rose 5.48 pts to 93.4-mid (3Q22 results: Sales +61.3% YoY, EBITDA +960.0% YoY)
  • Ceconomy €500m 1.75% 2025 senior notes STW declined 2.38 pps to 13.7%, cash price rose 5.08 pts to 62.5-mid (3Q22 trading update)
  • Boparan £475m 7.625% 2025 secured notes STW declined 2.33 pps to 18.7%, cash price rose 4.82 pts to 68.9-mid (3Q22 results: Sales +13.6% YoY, EBITDA +156.0% YoY, Net Leverage -1.8x to 4.9x vs. Prior Period)

Leveraged Loans Primary

There is only one loan issuer in the market, but it is a well-known, highly rated and frequent LevFin borrower, which should generate a lot of interest on both sides of the Atlantic.

INEOS is seeking to refinance a chunk of its jumbo dual currency March 2024 TLB. However, the UK-based chemical giant was unlikely to attempt to refinance the over €3bn (equivalent) outstanding in one go, especially given the current level of CLO demand.

The refinancing comprises a €400m TLB talked at E+400-425 bps with a 95-96 OID. In line with the USD focus European issuers currently have, the chemicals giant is also marketing a larger $750m TLB, talked at S+375-400 bps with the same OID guidance.

The first buysider said that for stable, well-known credits, the market is very much open, though at a price, of course. INEOS’ Ba2/BB-rated tranches seem as stable as it gets, even as a chemicals name just coming off the peak of the cycle.

INEOS will be keen for a successful print, as management indicated this week a return to the market again by early next year, to take out the remaining loan balance.

Moody’s put leverage at 3x, and the business boasts a €2.7bn cash position with €780m available in securitisation facilities.

The new deal is skewed towards dollars, reflecting the trend of European CLOs losing out in primary to US investors. The proportion of tranches denominated in USD issued between March and October has risen to 36%, from 26% in the same period last year.

The USD tranche should be well received across the pond, because, as a second buysider said, there is big demand for BBs in general in the US, and CLO managers are not restricted to primary, as they can get European BB deals at a discount.

As for the €400m TLB, INEOS priced a €350m TLB at E+275 bps in November 2021, so anything higher than E+425 bps could be considered a fall from grace, or more likely, the reflection of a dire European Leveraged Loan market. When senior blocks of CLO tranches are being sold at 250 bps, a four handle doesn’t cut the mustard.

Leveraged Loans Secondary

A host of BWICs once again graced the market, either indicating that CLOs are liquidating, or, more likely, that portfolio optimisation continues at pace. Tranches on offer are myriad.

Bids were due on 26 October on a €36m portfolio of mostly secondary loans. For a full list see here.

On offer were 14 loans and four bonds — €3.5m of Haya Real Estate 2025 SSNs, €3m of Reno de Medici 2026 SSNs, €2m of Lecta 2025 SSNs and €1.72m of Cirsa 2025 SSNs.

Loan tickets ranged from troubled names such as Vue InternationalThe Cookware Company or Groupe Casino, to high performers like Verisure and Elsan.

A €76m BWIC was also due on 27 October. For a full list of credits see here.

The largest slice came from French HR software firm Silae, offering a €4.5m chunk of its 2027 TLB, while only one bond made an appearance: €1.43m of chemicals company Italmatch’s 2024 FRNs.

Two sterling loans are also included: £4m of UK-based Civica’s 2024 TLB and £4m of online property searcher Zoopla’s £395m Jul 2025 TLB. The Zoopla instrument was also the only one in the BWIC currently indicated below 80 points.

Sub-90 instruments include software firm Unit4’s €675m 2028 TLB, currently indicated at 86.5 points, per 9fin data. As reported, the company’s EBITDA more than halved YoY in Q2, with staffing challenges and cost inflation driving it down to just €11m, according to two lenders.

As reported earlier today, the BWIC part traded with online property searcher Zoopla’s £395m Jul 2025 TLB with the lowest cover at 73.

Online payment processor Paysafe also just joined Zoopla in the 70s, with a cover at 79.76 on its €275m 2028 TLB, previously indicated at 81.583-mid that same day, according to 9fin data.

Next lowest was chemicals company Nobian at 81.531. The FRNs on another chemicals firm, Italmatch, alongside loans from perimeter security specialist Praesidiad and HR software company Silae, did not trade.

The house always wins

The week’s highest loan performer was Groupe Casino, the troubled supermarket chain based in France. Ever since the company launched a refinancing of its 2024 €1.225bn TLB (made up of a €1bn and a €225m tranche) in March 2021, pricing for the new instruments has sloped downwards.

Maturities for the TLBs were pushed out just a year and a half to August 2025, though the company did take advantage of the 2021 leveraged loan bonanza to decrease their margin by 1.5% from E+550 bps to E+400 bps.

This week, it said it had purchased and cancelled some €9.3m worth of its SUNs, perhaps inspiring lenders with confidence on how the business will tackle its 2025 maturities.

In Q3 earnings released yesterday, (Thursday October 27) the business also reported that it continues to dispose of assets, including a majority stake in GreenYellow to Ardian for €600m, which has gone towards paying down debt. Casino hopes to dispose of €4.5bn worth of assets by the end of 2023.

To top off the good news, consolidated net sales rose by 10.6% in the quarter, and Casino’s French operations increased by 26%, after lease payments.

The company’s 2025 €1bn TLB paying E+400 bps is up six points from its 14 October trough of 74-mid.

Holland & Barrett’s €418m 4.25% 2024 term loan B and £450m 5.25% 2024 TLB skyrocketed last week on the news that H&B owner LetterOne had offered to buy its debt back for £890m. The TLBs jumped from 60-mid to 77-mid and have stabilised there.

The UK health food and health products retailer received tenders from 99.3% of its creditor group by the 21 October 2022 deadline, a source close to sponsor LetterOne told 9fin on 25 October, as reported. The price paid under the debt buyback was 75, at the lower end of the price range, the source added.

With the group’s net leverage climbing up 2.4x YoY to 8.3x as of March 2022, lenders expected H&B to breach its 8.5x leverage covenant on its RCF, which was fully drawn by Q3 2022, as reported.

Lenders who participated before 7 October received an early bird fee of 4.75%, according to two buysiders. In addition, there was a consent fee of 0.25% available to all consenting lenders. A third buysider told 9fin: “This was a gift to lenders, you’d have to be stupid to say no.”

Another high performer this week is German off-patent pharmaceutical firm Cheplapharm, though it may have got too big for its boots. Buysiders were outraged when the company asked lenders to waive a covenant that prohibits Cheplapharm from making acquisitions above 3.5x the target company’s revenues, without a consent fee. 

As reported, such a covenant would rule out the company’s current pick: US-based asthma inhaler patents. With no consent fee and tepid reactions to the acquisitions itself, some lenders were struggling to see a reason to play ball.

This week, the company pushed the deadline for consent on its covenant waiver request out to 31 October, according to two lenders into the business, as reported. The original deadline was 25 October.

The company also announced that investment firms Atlantic Park and GIC would invest €550m in subordinated convertible notes. Cheplapharm has not communicated the use of these funds, one lender said, hoping it would go to bolster cash on balance sheet but admitting they had “low expectations.”

The company’s €1.48bn loan rose 2 pts this week, to 93.4-mid.

So, overall, the market was slightly up, though not dramatically so.

Jilted at the alter

But there was one credit left out in the cold. Hardest hit this week, with a stunning 27-point drop, was wedding dress retailer Pronovias. The €215m TLB dropped from 69-mid to 42.5-mid. The beleaguered Spanish business secured an amendment to waive the testing of the leverage covenant on its revolving credit facility for the next five quarters until June 2022, according to one source. Pronovias previously reached a deal to waive testing of the covenant last year in the three quarters following the June testing date.

BC Partners bought Pronovias from founder shareholders for €532m in 2017 in a deal backed by a €215m TLB, a €60m second-lien loan (PIK) and its €45m revolver.

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