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LevFin Wrap — Primary paucity while Apollo hogs M&Asda financing
Laura Thompson
+Ryan Daniel
•6 min read
The sun is out and the summer slowdown seems to have come early. Before looking at primary, we thought Deutsche Bank’s default study made some interesting reading, with the research team expecting EU speculative grade defaults to peak at 5.8% (Q4’24) which compares to 12.2% during the Global Financial Crisis. Looking under the hood of EU “speculative grade”, the team see peak defaults of 4.4% in EU HY and 7.3% in EU loans.
EU HY and EU loan defaults are set to come out lower than the US due to “1) more BBs in EU HY bonds & 2) lower B default rates, due to greater European fiscal support & less leverage in frothy sectors such as Tech”.
High Yield Primary
Another quiet week in European HY primary, partly thanks to a shorter week post-bank holiday/Memorial Day and school half-term. One banker suggested, though, that this could be good thing for spreads. “The primary pipeline isn’t that big, which could provide a technical support level.”
They said that one reason for the lack of supply is that “there isn’t a meaningful maturity wall until 2026 so there’s a small pool of issuers who need to go now”.
That said, looking out to 2026, European speculative grade maturity walls are at a eight year high so “a combination of weaker growth and/or relatively hawkish central banks should keep financing conditions tight, further increasing maturity wall pressure on global corporates in the 2H'23 and especially into 2024”, according to the Deutsche Bank report.
Better go now when you have the choice or risk having to go later in perhaps worse conditions? That’s the question for management teams and sponsors right now.
It wasn’t total tumbleweed in high yield, with Nordic markets bringing some euro-denominated supply.
MEDIA Central, the digital marketer, reached out to Arctic Securities to arrange fixed income investor meetings regarding the fully underwritten €200m senior secured sustainability-linked bond issue. The bond is expected to part-finance the acquisition of ShopFully, refinance existing debt and be used for general corporate purposes.
Norwegian shipping company Havila Kystruten,also set plans in motion by mandating Arctic Securities, Fearnley Securities and Nordea as joint lead managers to arrange fixed income investor meetings. A three year senior secured first lien bond of €390m is expected to follow — proceeds to refinance all of the company's existing debt and to finalise the Havila Polaris and Havila Pollux projects (environmentally friendlier ships).
The biggest news of the week was probably the announcement of the merger between Asda and EG Group’s UK and Ireland operations, though the transaction is not leaning on any public markets.
Apollo is providing all of the £770m loan financing, despite three large financing banks advising on the deal. This tranche is a six year loan pari with existing Asda secured debt, and paying Sonia + 675 bps. Most of the heavy lifting comes from property financing, with a £1.1bn ground rent and sale and leaseback transaction, plus £51m cash on balance sheet, and £450m equity provided by the shareholders covering the balance of the transaction. In response to the news, EG Group’s bonds haven’t moved a great deal - which fits with Moody’s decision this week to affirm EG Group’s ratings (with a stable outlook).
Diebold Nixdorf (9% 2025 SSNs down 25.5 points on the week to land at 20.0) saw the week’s biggest price fall, as the ATM company filed for Chapter 11 bankruptcy protection (more from the team here), aiming to reduce overall debt by $2.1bn. Be sure to check out the latest Top of the Flops - Distressed Watchlist where we dig into this and more.
Zooming out, our sellsider pointed to relative stability despite some rumblings in the economy. “The high yield market is broadly going sideways… considering other things going on, that’s not a bad thing.”
Others are not so sanguine. A buysider we spoke to mentioned that clients are staying clear of the space given the current macro backdrop.
“They don’t think spreads on offer (in high yield) compensate for recession risk yet… especially when you look at the yields on offer in investment grade names by comparison.”
The buysider said that clients are happier to juice up investment grade yields by moving down the capital structure to buy hybrids from IG issuers— prioritising quality amid uncertain times.
“By moving down the capital structure, you can pick up higher yields without relying on high yield management teams.”
On this note, take a look at the latest Friday Workout and Earnings Digest for more on how high yield companies are navigating the current economic environment.
Rounding off the high yield market this week, we also heard from entertainment powerhouse Banijay that it is offering to purchase for cash up to $50m for its outstanding $403m 5.375% 2025 SSNs. This follows the decision to A&E loans in dollars and euros back in April. These amendments pushed out maturities on the €453m and $449.7m TLBs from March 2025 to March 2028.
Leveraged Loans Primary
Over in loan land, small add-ons largely mopped up by existing lenders continue to dominate, typified by offerings such as last week’s €50m slice from medical packagers Nemera.
“It’s frustrating,” said one sellside source. “The underwriting capacity is there, but the demand isn’t, so the pipeline looks anaemic. We’ve got a few more bitty add-ons in pre-sounding, but the M&A, LBO new money relief won’t be for at least another few weeks.”
“It’s going to be post-summer for LBO deals,” said a second sellsider. “Until then, I don’t think anyone’s going to be saying it’s a particularly exciting market.”
Beyond the three or so add-ons now in pre-sounding, an M&A cross-border deal could provide around €1bn of loans supply come summer, per the first sellsider, with another €400m to €500m loan deal currently being prepared. Further pipeline action may come from P2P deals, with corporate auction processes continuing to unravel in the face of divergent valuations between buyers and sellers, both sellside sources add.
For now, larger offerings are still, alas, those addressing upcoming maturities: after tapping into bond markets last week with €700m 2030 SSNs, British entertainment company Merlin Entertainments now turns to the loan market to extend €700m of its existing €1.4bn TLBs by three years, from November 2026 to November 2029. Initial price talk is guiding at E+400-425 bps, with a 0% floor and 99 OID.
Some small primary excitement comes in the form of baked goods. CH Guenther & Son, the privately-owned grain-based food firm, is in the market with €230m 2028 TLBs (guided at E+450 bps) to refi its existing €190m TLBs due 2025.
Sources close to the deal say the credit is popular with its existing lenders, but new investors are reluctant to play on size grounds: “It’s just a bit on the small side for us,” said one buysider, “so we didn’t dedicate much time there. There wouldn’t be the liquidity there; Monbake was already a push.” (See our Monbake coverage here.)
Finally, French beauty packaging company Axilone also came to market to A&E (three year extension to January 2028) its €313.6m and $44.6m TLBs. The launch saw Moody’s upgrade Axilone to B2, citing improved liquidity, operational performance and continued deleveraging.
Leveraged Loans Secondary
Chapter 11 gloom followed Diebold Nixdorf into the loan markets — its $384m and €106m TLBs were down 22.2 and 17.5 points on the week respectively.
Australia-based cancer care provider Genesis Care saw its debt continue to tumble (€500m TLBs down 12.6 points this week) as it seeks a $200m debtor-in-possession financing following its bankruptcy filing. The DIP financing, which existing lenders are providing, is subject to court approval, according to a press release on Thursday from Genesis Care. This financing will allow the company to continue meeting obligations — to to patients, doctors, employees, hospital and health service partners and suppliers — while also financially restructuring the business.
