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Michal Skypala

Laura Thompson

The half term break and the go-stale date for bonds brought a short breather to leveraged finance markets as no new public deals joined the pipeline this week — though there are whispers of some private transactions to come in the near future.

The market pause is a convenient time to step back and see where syndication stands at the half time point of Q1. Especially in loans, there’s a technical supply-demand mismatch which will continue to support new primary transaction — there’s still a big gap between the volume of CLO supply and the volume of new money LBOs.

Managers are eager to ramp their deals, and there are plenty out there trying to to print, with as many as 10 CLO deals in the market, Owen Sanderson reports in the latest Excess Spread. That implies around €3-4bn of demand for loans, which must come from somewhere other than the slew of A&Es and small add-ons.

It’s not surprising that new CLOs are hungry for supply, with some coming to market ramped only 15%. A&E transactions don’t necessarily help, as existing lenders get a first look, so the volume of declines determines how much supply is available to expand positions, or give new investors a chance to join the lender group.

“Nord Anglia had very few lenders to decline which meant only a bit of new money, “ said a sellside banker. “But on average the new money is about 25%-33% of the book, it can really go up and down depending on the credit.”

The new earnings season is rolling forward, with issuers starting to release FY 22 numbers. In the bond market, the SEC’s 135 day deadline for numbers going stale means some companies are already shut out of issuance until they can release FY figures.

But macro conditions remain supportive, and there could be a second leg to the 2023 rally. This week German wholesale inflation (PPI index) dropped from 21.6% in December to 17.8% for January, for example. UK retail sales also beat expectations this week, rising 0.5% in January, rather than the expected 0.3% fall.

Another gap that’s gradually closing as a result of good macro data from Europe is the spread difference between European and US HY, with more tightening felt on this side of Atlantic, according to the ICE BofA High Yield indices.

We’ve also been looking at the performance of recent new issues in secondary, where the picture looks very different in bonds and loans. Many of 2022’s new issues flopped in secondary, against the backdrop of a broadly widening market, but so far in 2023 most new supply in loans has performed — see the graph below.

It’s a different story in bonds, with some lacklustre performance, notably from French property manager Emeria, which saw its new €400m 7.75% March 2028 SSNs trade down 2.75 points from issuance on February 7 to a 97.3-mid quote. Iliad’s €500m 5.625% February 2030 SSNs have slipped a point or so to 98.2, which Isabel Marant’s new €265m SSNs have also softened slightly from a par print to 99.6.

The only recent issue with a decent price pop was the €325m February 2028 SSNs from Swedish shipping conglomerate Stena, which are up to 101-mid.

European high yield funds recorded another inflow last week, the eighth week in a row, compared to outflows for US and global HY.

Primary syndication should pick up pace next week as whispers reached 9fin of at least one deal launching at the start of the week, two private bonds marketed this week and set to early next week, and another big A&E in the works.

Only one bond has publicly priced this week but it could have set an interesting template.

CVC Capital Partners successfully executed its bond for the buyout of SGL International, an issue which wasn’t underwritten by an investment bank. CVC appointed Pareto Securities to place deal, and successfully issued €750m of five year senior secured FRNs at 98 and E+ 675bps. CVC’s takeover of the company was contingent on successful placement of the bond, Bloomberg reported.

The oversubscribed transaction was taken by existing and new investors, across Nordics, Europe and the US. If the usual underwriting banks remain cautious, the new opportunistic sponsor-to-lender model might become a more common approach.

UK retail business Co-Op launched a tender offer on Friday for its £300m 5.125% 2024s. Bondholders have until 4pm UK time on February 24 to respond. The purchase price will be decided by Dutch auction and will be between 98-99.5, with the maximum acceptance amount at £100m.

Finnair, the largest airline in Finland has launched a tender offer for its €400m May 2025 SSNs paying 4.25%. Minimum purchase price is set at 85.5 . Investors are free to tender at a higher price, and the issuer will set a final purchase price, which all offers at that level or below will receive. Bondholders have until 4pm Finnish time on 23 February to consider the voluntary offer.

The best performer in European high yield this week was German electronics retailer Ceconomy. Its €500m June 2026 SNs paying 1.75% climbed up 6.8 points to 76.8-mid price after delivering a decent set of earnings for the period from October to December (the company calls this the first quarter of 2023).

More recent trading gave management the confidence to confirm guidance outlined during FY 22 earnings in mid-December, and to reiterate that their ‘scenario 1’, the more optimistic scenario, remained the more likely. Read more in Emmet McNally’s analysis of the fresh numbers.

Finnair’s bonds also popped, with its €400m 4.25% May 2025 SSNs up 6.2 points to 89.9-mid, a leve last seen in April 2022. The tender offer is clearly a major driver of the price move, but the company also announced strong earnings with Q4 sales up +66.2% Y-on-Y, while Q4 EBITDA rose from €12.6m to €99.1m for Q4.

The worst performer this week was the German commercial real estate business, Vivion Invetments. Firm that has been already in December flagged by short seller Muddy Waters has seen its €700m August 2024 senior notes paying 3% fall almost two points to 83.9-mid while €340m and €300m November 2025 notes both paying 3.5% fell under 80 level to 79.4-mid price. Notes seen some pick up in 2023 from the bottom price of 72 for 2024s and 72 fo 2025 notes which was felt on December 14 when the Muddy Waters report was released. 9fin’s distress reporter David Orbay-Graves has analysed in detail Vivion’s prospects in its two-part series here and here.

The UK-based power rental firm Aggreko (B1/BB-/BB-) has generated electrifying demand, allowing it to more than double the size of its euro-denominated loan offering from an initial €130m to €300m.

The fungible add-on pays E+ 525bps and OID landed at 97.5, a decent reverse flex from 96.5-97 original talk, especially considering the increased size.

Also on offer was a $300m non-fungible TLB tranche bearing a SOFR+550bps margin, offered at a 94 OID. This had yet to price at the time of writing.

The dollar piece backs the acquisition of US-based Resolute, a match-up buysiders welcomed, as it brings increased US exposure and resilient end markets (such as education and healthcare). A £122m sponsor contribution, meanwhile, fully funds the acquisition of UK-based peer Crestchic.

As noted in 9fin’s preview of the credit, lenders raised concerns about the company’s ongoing fleet growth plans against a backdrop of macro pressure and increasing interest costs. In the end, a five-handle margin for a double-B credit was hard to resist, especially given the supply-demand mismatch.

Another UK firm, consultancy ERM, also felt like a no-brainer to the buyside. The final €233m TLB size ($250m-equivalent) was at the top end of the $200m-$250m initially talked, and OID was also tightened from an initial 97.5-98 range to 98.5.

Buysiders labelled it an “investment credit”, a “good, well-run business with diversified end-market exposure and the ability to flex costs”, and expressed confidence in the growth of the sector.

ERM is using the new issue to clean up its cap stack and lower its interest burden. The add-on will take out the second lien dollar debt with its hefty 650 bps margin, helping to keep a lid on debt costs, while the company’s growth keeps leverage to a manageable level.

Outside of the UK, the Finnish equipment rental company Renta (B2/B/B+) privately placed a €200m TLB. The deal proceeds will be used to paying down RCF drawings, and pricing was 98 OID and E+ 535bps margin for the five year issue.

In the secondary market, we’ve been following the further selldown of the loans backing the buyout of Morrisons, one of the oldest hung deals still partly left on bank balance sheets.

Buysiders have been shown additional sizable chunks of the euro loan, following news that BNP Paribas had sold a further €500m to funds including Apollo earlier this month.

As the MFN on the bank-held paper expired this week (See 9fin’s Educational on syndication MFNs here), prices at which the €50m+ clip is being offered varied. Sources told 9fin that they were shown the loan in a price range of 85-87, though another buysider had seen an 82 price.

One trader has also said they have seen a market in the sterling-denominated of 84-85.5 in substantial size — £30m each side.

Outside of Morrisons, the secondary loan market remained “pretty calm” with the combination of half-term and awaiting new CPI figures, said a trader. Overall price moves between industries were mostly kept under 0.1 points up or down, with Materials picking up the most and Communication Services earning this week’s biggest loser award.

The best performer in euro-denominated loans this week was US software firm Veritas, which saw both its €200m and €549m TLB tranches due in September 2025 up almost nine points in a week to 77-mid quote, on strong third quarter earnings.

The German indoor air solutions business Flakt Woods also continues to climb on the back of an A&E proposal said to include a small equity injection. The €300m TLB maturing this October picked up five points this week to 86.5-mid quote.

The German sausage casings maker Kalle Group endured the most pain, with its €145m TLB due this June down more than 11 points to below 70.

Another German issuer, medical supplier GHD also saw a slump this week, with its €360m TLB down over five points in a week to 70.5-mid level.

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