“Historically direct lenders were charging around 200bps of illiquidity premium vs the distributed market. If primary starts functioning again, syndicated loans should regain share. But at the moment, for medium-sized and even large deals, direct lenders are taking the assets from distributed loan market,” said a sellside banker.

Outside of the best credits, banks are hesitant to lead a new deal of a significant size since the real demand for new issue paper has not been tested yet this year. Even with many CLOs ramping, each has a limit on how much exposure they can have on a new name, limiting the scope for large cap issuance, said a leveraged loan PM at a CLO manager.

The A&Es we’ve seen so far this year have usually moved maturities out two or three years — useful for the company, but some lenders are starting to ask if the credits that are kicking the can are just creating a bigger refinancing problem in the future, with a very packed calendar down the road.

“In two years a big maturity wall starts and uncertainty of market conditions there could be higher,” said one CLO analyst.

Since extensions don’t increase debt volumes, the size of the maturity wall is not increasing much — it’s just becoming more concentrated. It helps that the issuers proactively addressing their maturities and taking higher funding costs are the ones that will have least problems with any future refinancings anyway, said a second sellside banker.

There are three buckets of A&E being cooked at the moment, explained the CLO manager.

First are good businesses with low volatility of earnings that can support the increased base rate cost and opportunistically want to deal with maturities now, while buysiders don’t have much alternative supply.

The companies in the second bucket have more complicated balance sheet and need capital negotiation, with additional equity and/or tighter covenant documentation before stepping to the primary market.

In the third bucket are companies where sponsors are having the most difficult dialogue with the banks. Their performance may not be good enough to handle elevated interest rates, leverage levels may be too high, and their path may end in restructuring.

By product, loans remain the preferred route to extended maturities. Bond supply has shrunk after a spurt of activity at the start of the year, though some issuers remain locked out until they’ve reported Q4 numbers, because of the go-stale period.

“There is limited loan liquidity in secondary, because of the low churn, which is primarily because of lower M&A volumes,” said the first banker. “You also don’t have loan to bond refinancings taking place, as bond yields have also risen, so loans aren’t being repaid from new bonds.”

The majority of the bond transactions this year have been refinancings raising minimal new money.

But not all deals! Specialty chemicals distributor and suppler Azelis, previously a loan-only issuer, launched its first HY bond this week.

The strong execution of the €400m 5NC2 SUNs showed that pent-up demand is available on the fixed rate side, if a good credit comes with a strong BB+ rating.

The first euro-denominated syndicated HY bond since February 9 priced at 5.75% on Wednesday, 50bps inside high end of the initial talk in the 6%-6.25% range. Read 9fin’s Credit, Legal and ESG QTs.

The Norwegian marine geophysics company Petroleum Geo-Services brought a a $450m SSN due 2027 to market this week. The Issuer is going against the tide, using a bond and cash on balance sheet to fund a $600m partial refinancing of its $738m Term Loan B due 2024.

Moody's placed the firm’s Caa1 corporate rating on review for upgrade to B3, if there is a successful close. S&P also gave a preliminary single-B and placed the corporate CCC+ rating under special surveillance, with the option of one-notch upgrade once the refinancing is completed.

Movers & Shakers

The biggest bond riser this week was Italian power plant specialist Ansaldo Energia. It has seen its €350m 2024 senior note paying 2.75% rise over 3 points to 90.7-mid quote from 87.6 in a week. The company’s debt plunged into the high 70s in October 2022 to high 70s after it announced large writedowns related to gas power plant projects. The restructuring ended in a capital increase of €550m.

The second best performers were bonds from the Issa brothers/TDR Capital-owned petrol station chain EG Group, which announced a $1.5bn sale-and-leaseback of selected US assets, with proceeds to be used for debt repayment. It followed this up with end of the year numbers. Sales were up 5.1% in the fourth quarter, EBITDA was down 14.9% Y-on-Y and net leverage was up 0.2x to 6x.

The sale-and-leaseback was seen as positive by a buysider, as paying down the bond debt should help make the company’s refinancing easier. EG Group sits currently at the lowest notch of the single-B rating band, and a further downgrade would effectively close off the refi route, as CLOs would be reluctant to participate and some would likely sell EG’s loans.

“It’s now unlikely to be downgraded, as agencies are focused on ability to refinance and this undoubtedly helps towards that cause. I won’t rule out a change in outlook but depends on how they use the proceeds. In the worst case it sits as cash and improves liquidity,” said the buysider.

The €300m February 2024 SSNs paying 3.625% and €700m October 2025 SSNs paying 6.25% both rose over 2.8 points to 97.5-mid and 91.4-mid quotes, respectively. The €670m February 2025 SSNs paying 4.375% rose 2.7 points to 90.3-mid quote.

The biggest slide in the bond universe this week comes from the troubled Norwegian cruise line operator Hurtigruten. Its €50m February 2025 senior note tap from last year slid 4.5 points to 95.8-mid quote. Read the latest analysis on the company's prospects by 9fin’s Denisa Stoyanova.

It was also a bad week for debt issued by US chemical company Solenis. As the news broke that the company is acquiring peer Diversey for around $4.6bn, an all-cash deal including the assumption of debt, S&P put Solenis on CreditWatch and euro-denominated bonds from the company gave back all their gains since the start of the year. The €265m October 2029 senior notes paying 5.375% lost almost 3.5 points to 75-mid quote. The €500m October 2028 SSNs paying 3.875% fell just over two points to 82.8-mid quote.

Bondholders to the French supermarket chain Casino felt some pain after news broke on Thursday on an investigation over alleged price manipulation and insider trading. The €800m January 2024 SSNs paying 5.875% suffered losing almost 3 points to 92-mid level. The bond hit its lowest level since the end of October.

Casino also announced it was in exclusive talks to combine its French retail business with smaller food retailer Teract, news it followed up with its end of year numbers on Friday. Sales were up 10.2% and EBITDA 1.1% in the fourth quarter compared to last year and net leverage decreased half a turn to 2.5x compared to previous period. Management said it plans to cut costs in a €75m savings plan as it reported 5.9% decrease in 2022 operating profit compared to FY 2021.

HY spread decliners (price increases)

HY spread risers (price declines)

Leveraged Loans Primary

The previous round of smooth A&E executions started to show some cracks this week.

Swiss specialty chemical firms Archroma is the one that slipped up. The deal is finally coming to price, a full week after initial commitments were due, with the final size trimmed down by $20m to $830m-equivalent, concessions on documents for both euro and dollar tranches, and pricing at the lower end of OID talk.

The €455m TLB will price at E+ 550bps with only one margin step down, reduced from two initially offered at launch.

The $350m TLB will come at S+ 550bps flexing another 25bps from launch and giving up on the margin step down originally included. The OID on both landed at 95, the wide end of talk in the 95-96 range.

In 9fin’s preview of the credit some buysiders showed some scepticism about the company’s ability to turn around the business from the weak December 2022 results (the company’s Q1, given September year-end.)

UK’s petrol station chain Motor Fuel Group plans to close a three year extension of its euro and sterling tranches next week. The £765m loan will see its margin increased from 425bps to 600bps over Sonia, with a 95.5-96.5 OID price talk. The €1.085bn tranche is guided at E+ 475bps-500bps (from current E+325bps) and a 97-98 OID.

The euro loan is expected to be fully extended, while up to £400m of sterling will be pushed out but could be a lower amount depending on demand to keep interest costs down.

Motor Fuel Group expects to pay about £160m of interest cost in 2023, a figure that is forecasted to decline next year. Prior to the A&E, the company’s interest burden was between £25 and £30m per quarter with a £50m spike in Q4 22.

At the same time Clayton, Dubilier & Rice-owned business is taking some money out of the structure with a £92m outflow combining a management bonus and shareholder loan repayment. The sponsor has contributed £400mm equity to date and has already taken out £800m from the cash generative business.

Buysiders are widely bullish on the credit — more to follow on 9fin’s preview of the name.

The deal is marketed off £387m Adjusted EBITDA for December 2022 giving 4.3x senior secured leverage and includes a margin ratchet with 25bps cut on both loans if leverage goes under 4.25x and another 50bps tightening with leverage below 3.75x. The corporate and instrument ratings are B2/B.

French nursery operator Grandir (Education Group) is also in the market with a bit of new paper, offering a €125m TLB add-on maturing in 2028. Price talk is between 96-97 with a E+425bps margin.

The deal is marketed off €93.7m EBITDA, which includes adjustments for run-rate M&A, synergies and ramp-up of new sites and gives total net leverage at 4.77x.

The add-on comes on the back of a burst of M&A activity, with the group closing 17 M&A deals in 2022, mostly in the UK and the US. The acquisitions bolster geographical diversity and scale, one lender said, though ultimately “make it a more complicated name to go through the numbers on.”

“The track record of integrating is there, but there’s still persistent risk on that front,” they said, adding: “It’s not a major concern.”

Given the highly fragmented nature of the childcare sector in Grandir’s geographies, more acquisitions are likely to come, they said. More to follow on in 9fin’s full preview.

French beauty packaging company Albea is in market with a €566m A&E, pushing out the maturity on a €444m TLB that currently pays E+300bps and refinancing a $129m tranche with a L+275bps margin, both due April 2024.

The euro TLB is guided between 95-96 OID with E+500bps margin and will mature in December 2027. The deal has a margin ratchet that cuts by 25bps if leverage is below 3.5x and by 50bps if it falls below three turns, with a year holiday.

Ineos Enterprises is the latest piece of the Ineos complex to come this year, with a new issue to fund the acquisition of MBCC Admixture.

The €820m-equivalent TLB will be split into euro and dollar tranches. The euro piece is talked at E+ 425bps-450bps over Euribor, while the dollar tranche is guided at S+ 400bps-425bps plus a 10bps credit spread adjustment. Both have initial OID set at 98.

Leveraged Loans Secondary

Secondary activity was more muted this week with no BWICs seen on trader’s screens, in contrast to a recent run of activity.

Across industries tracked by 9fin, all sectors saw price improvements other than IT. Consumer discretionary was up the most with a 0.25 points increase.

The best performer in loans this week was the German SLV Lighting that seen its €397m TLB due this December pick up over eight points to 85-mid quote. The company’s loan is quoted at the highest level since last August.

The lighting manufacturer has proposed a three-year extension on its €400m 2023 TLB and €50m RCF in exchange for €40m of total new equity and a 175 bps margin uplift.

The deal would push the maturity out on its TLB to 31 January 2027 from December 2023. The RCF, meanwhile, would now come due on 1 December 2026.

The French landscape and maintenance firm Idverde also had a good week seeing its €335m July 2028 TLB rise 6.6 points to 67-mid quote. The company’s loan is at its highest price since it was downgraded to triple-C level by Moody’s at the start of November.

Armacell lenders were also pleased at seeing prices go green. The €710m February 2027 TLB from the German industrial foam manufacturer rose almost four points to 91.1-mid quote. Armacell released figures on its financial performance at the end of February. Net sales rose 19.1% to €806m driven by price increases to compensate for higher input costs, additional sales from M&A activities, as well as favourable FX developments. Armacell added 3.9m to its adjusted EBITDA €120.7m compared to 2021 figure while adjusted EBITDA margin went down to 15% from 17.3%.

EG Group’s loans, also performed well, given the news discussed above, rising over 3.1 points to a 93.4-mid quote.

UK online property search and household services comparer Zoopla (B3/B-) built back some profit in its recent earnings, as Laura Thompson reported this week, softening previous concerns over its ability to refinance upcoming 2025 maturities.

Sales came in at around £115m in Q4 2022, up 11% YoY, with quarterly EBITDA lagging slight behind with a 7% YoY boost to around £40m. LTM December 2022 EBITDA, meanwhile, stands at £121m.

Still, lenders remain concerned about the company’s debt burden, with net debt totalling £1.3bn for 7.5x net leverage.

On the other side, the largest decline of almost 5.6 points was felt by the €564m January 2027 TLB from Technicolor Creative Studios. The French movie post-production specialist announced this week it had reached an agreement in principle on the provision of €170m in new financing including a recapitalisation plan.

The company also announced end of the year numbers with sales down 9.6% in Q4 22 and EBITDA sliding 239.1% compared to same period last year. Full year sales were up 30% at €784m compared to 2021 and adjusted EBITDA after leases was €20m, down from €75 million in 2021.

Ireland-based ambient food producer Valeo Foods (B3/B-) disappointed lenders with its recent results for the quarter ending December 2022 (the company’s Q3 2022), as it struggles to digest cost inflation, as well as headcount and supply chain issues in its UK market.

EBITDA shed weight in the quarter, falling 19% YoY to €43m, despite a 2% increase in sales to €406m, according to two lenders in the business. LTM December 2022 EBITDA came to €138m, with LTM December 2022 Structuring EBITDA at €163m on €25m of adjustments.

Structuring net senior secured leverage is now up at 6.7x, with net total leverage at 8.7x.