LevFin Wrap — It’s a new yawn, it’s a NewDay, and LevFin is feeling good
- Laura Thompson
High Yield Primary
Primary high yield bonds took a further break after a long run of inactivity that constitutes 2022, with only an amended exchange offer for NewDay to disturb the tedium. High yield is a market that appreciates our friends across the pond (hence the ubiquitous 144A docs), and Thanksgiving on Thursday shortens the window, as US fund managers skip out for the holidays.
Indeed, it traditionally marks the end of any good execution windows, as investors and banks close the books on the year and hope the home stretch towards Christmas is uneventful with a slight tightening bias. Add in the start of the World Cup, with attendant hospitality and attention off the screens, and you have a recipe for a thin market.
The market backdrop, though, is surprisingly benign, with Crossover back on the right side of 450 bps. Even better is some cold hard cash coming in the door. According to the Barclays research team, the period 17-23 November saw the largest inflows into pan-European high yield funds in the last 12 months, capping a three week run of inflows into the asset class.
Admittedly that comes at the end of the worst-ever year for the asset class other than 2008, but low prices and inflows maybe signals a good entry point?
UK credit card lender NewDay launched its exchange offer last week, but tweaked the terms of the deal on Thursday, before closing the offer on Friday. It cranked up the cash consideration from £118 per £1000 to £131.5 and amended the new issue price, as well as tweaking certain covenants.
Based on NewDay’s Friday release, the sweeteners worked pretty well, with £265.5m tendered into the offer, from the outstanding £275m+£50m tap. NewDay said it would release the full financial terms (final principal amount, new issue price, exchange ratio, cash consideration, exchange consideration and so on) “as soon as reasonably practicable” — but the aim, presumably, is to mostly clear out the 2024 issue.
NewDay, as we saw last week, is mostly funded through securitisation facilities, and remaining active in term securitisation markets this year has given it decent headroom in its bank-provided private securitisations — it’s unlikely to want a stub of bonds going current next year if it can avoid it.
Leveraged Loans Primary
Bankers are set to wrap up the remaining hung debt on CVC-backed Ekaterra’s spin out from Unilever Tea, according to a source close to the situation, hoping to clear the related hung debt before 2023 rolls around.
However, as that New Year deadline looms closer, loan activity continues to be characterised by add-ons and Amend & Extends (A&E), rather than these larger deals. These types of deals are set to continue to dominate the pipeline through Q1, according to one sellside source — as banks are still shy on taking the risk of coming to market with large tranches, while issuers feel more comfortable pushing out their maturities rather than attempting full refis.
French medical manufacturer Sebia is one such A&E this week. The company is seeking to push out maturities on its €890m and $225m TLBs from October 2024 to December 2027. The sentiment so far from the buysiders is that the company will be able to do so with relative ease. “We’re going to see a lot more businesses being proactive and trying to push out maturities and that’s what Sebia is trying to do here,” said one lender. “Some will be easier and some will be harder to get done.”
A second buysider agreed that Sebia should navigate the request easily, It’s smooth sailing, calling the business a good credit, with strong recurring revenues, benefiting from its razor blade model.
Dutch chemical distributor Barentz, meanwhile, is out with just a slim €150m 2027 add-on to back M&A, minority buyouts and repay its RCF drawings. In its last add-on in March 2022, buysiders were taken with the company’s non-cyclical demand, scale and ability to pass-through costs, though pointed out its status as a middle man creating pricing pressure from both sides.
Two existing lenders into the business expect this add-on (Barentz’s second of the year) will likely go through without many snags, though are eyeing an OID in the mid-90s to compensate for the low margin. Pricing on the add-on is guided at E+375 bps in line with the existing TLB. Commitments are 12pm UKT Wednesday 30 November.
Finally, Emeria (previously Foncia) wrapped up its €550m 2028 add-on at E+525 bps and 95.5 this week — upsized from €300m at launch and PT tightened from 94-95 as it capitalised on a familiar buyer base keen for fresh primary issuance.
“A lot of KPIs are better than competitors, such as churn rate, and cash conversion cycle,” said a third buysider. “The insurance business has some seasonality, but generally we are content with what has been presented. There is no big concentration risk, the supply side is strong and it is well managed.” Read a full preview of the deal here.
High Yield Secondary
The largest fallers in secondary this week were restructuring related.
Orpea’s senior notes continued to fall sharply after last week’s unveiling of its transformation plan. Its bonds are now indicated in the low 20s from the high 20s, with a call for unsecured creditors being hosted this afternoon. 9fin’s analysis published earlier today struggles to find equity value for new money providers.
Codere 2027 SSNs fell 14 points to around 70, perhaps in reaction to last weeks news that it requires €45m of additional liquidity in 2023. After undergoing a debt restructuring last year, creditors took over and began pursuing the longer term growth plan, but despite an impressive turnaround, it is likely to fail to meet FY 22 projections of 4x leverage on €277.8m of Adjusted EBITDA. In September LTM Adjusted EBITDA was €198.9m, 5.1x net debt. To avoid falling short on its estimates, a monstrous €123.9m of EBITDA is required in Q4. It was also disclosed that it and other gaming operators had been fined by Spain’s regulator for “serious” infractions.
Corestate bonds failed to recover despite narrowly averting a painful Luxembourg insolvency filing. Their SUNs languish in the low teens, with its bondholders set to take charge over the German Real Estate business. The AHC proposal involves taking over 81.25% of the group’s equity in return for an 80% haircut on the group’s outstanding €500m of notes.
As one restructuring is set to close, another one opens, with more tasty fee slices for advisors:
Telepizza (Food Delivery Brands) today said that “given the adverse prospects for the rest of 2022 and 2023 and the group’s difficult liquidity position, Food Delivery Brands intends to engage in discussions with stakeholders, including creditors and Yum! (its JV partner) to effect changes to its business, capital structure and Yum! Alliance.” The Spain-based Pizza seller said that it had hired Kirkland & Ellis; Uria Menendez and Houlihan Lokey as advisors to evaluate options. Its May 2026 SSNs fell by two points to 70.5-mid on the news.
A sale slice has left a poor taste for Intrum Justitia bonds which fell 3-4 points earlier today, before recovering to 2.5-points down on further revaluations to the Swedish debt collector’s Italian NPL portfolios. In conjunction with Carval it has sold 37.5% of its exposure in a jointly managed Italian SPV to Kistefos, a Norwegian family office for SEK 109m. This will require further negative adjustments to its Italian NPL portfolio valuations on top of those announced in late September.
The biggest risers this week included Veon, which rose 10-points after dialling up the sale of its Russian business to its local management team and stated an intention to extend and then repay its 2023 debt. The June 2024 notes are back in the mid-80s.
Elior bonds also rose sharply, by around 6.5-points after news emerged that largest shareholder Derichebourg (with 24.5% equity stake) was considering contributing its services business to the France-based catering and facilities provider. As reported, a day earlier Elior said it would soon reveal details of a strategic review which would also address its balance sheet.
Other big winners were Maxeda (supply overhang taken out?) and Altice France — which reported earlier this week. Other notable performers included Atento (third-party share tender offer) our recent piece is here, Adler Pelzer and Together (which reported yesterday).
Leveraged Loans Secondary
Earnings season is in full swing, but positive results are not the happy ending some issuers might have been hoping they were, according to buyside sources.
Companies that have deleveraged to the point they’ve blasted through their margin ratchets and are now paying in the 200s (two buysiders named buildings materials firms Ahsell and Stark (see here and here for their recent results)) are getting left behind in market-wide rallies, two lenders said. With CLOs own spreads going up, these overperforming names have become unattractive in secondary, keeping their prices depressed while other, higher-margin loans are lifted by market-wide sentiment shifts.
Looking at the overall market, however, sectors’ fates were divided in secondary this week, with Real Estate and Materials buoyant, while Communication Services appeared to miss out on any market-wide rally.
In the week’s individual moves, two UK cinema operators, Vue and Cineworld, fell the furthest (-7.7 and -7.2 points respectively), with Vue’s drop coming after it published its mid-year trading update.
Following on from them, US-based fibre infrastructure provider Zayo Group was also down -4.0 points on its €747m 2027 TLB. S&P downgraded Zayo to B- following weak Q3 results and recent debt-backed acquisitions. Elevated network and labour costs, as well as FX fluctuations, hit their earnings, the ratings agency wrote, although they expect positive booking growth in 2023 to bolster future quarters.
Names such as Spanish paper manufacturer Lecta and chems firm Nobian also rose this week on positive earnings. However, it was PDA that led the climbers this week again after its Q3 results last week, although some bondholders were sceptical at the level of celebration. “I think how much the results are being celebrated points to how bad expectations had gotten, rather than the results themselves,” said a third buysider.
“There are still long-term questions on this name and I’m surprised that their bonds rebounded the way that they did after last week’s results,” said a fourth bondholder. “The lines that management are giving around the air fryer market don’t ring true to me in a cost of living crisis, I’ve been shocked at how people appear to have taken it in. I still expect Q4 to be brutal.”