The go to stale date for issuers that have yet to report full year numbers has just passed and issuers that miss that deadline can’t come to market with a 144A transaction. 

The path to a stable market probably looks more like a marathon than a sprint, with further rate hikes and macro moves that could block the first rays of sunny weather. 

“The expectation is that there are a still a couple more hikes in euro land, at least one more in the US and one more in the UK,” said a credit analyst. “So issuers coming to market need to compensate for it in spread and pay accordingly.”

This week the Euro overnight indexed swaps curve added around 10bps and is now pricing two full hikes in the next two meetings, which would translate into a target rate of 3.75%.

The flow of A&E transactions from the earlier part of this year has lost steam, as banks have cleared most of the no-brainer transactions from the less contentious credits, and the more difficult ones are waiting on the sidelines. 

“There is a natural gap in loan extensions at the moment but we still have some coming in the next month or two,” said a sellside banker.

Issuers are also starting to think much more seriously about their 2025 and 2026 maturities (see the newest version of 9fin's A&E waiting list), added the banker. Reverse enquires from impatient holders are also starting to play a role, in encouraging companies to come to market, giving CFOs confidence to come earlier and lock in a margin now rather than later, said a second banker. 

Some companies are hedging their bets between locking in fixed rates and issuing floaters, potentially paying a premium now, to benefit from a future drop in base rates, or to keep the flexibility of limited call protection.

Therefore, a staple corporate issuer like Crown, which came last week, is more inclined to keep its debt stack fixed for visibility, while a sponsor-backed company can have more preference for an FRN with one year call protection to keep flexibility around a potential exit, according to the first banker. 

Larger capital structures like CABB or Cheplapharm also often include floating rate instruments to open themselves to a larger investor base, particularly including CLO participation. In the case of Lottomatica, Italian tax rules essentially block the TLB structure, meaning issuing an FRN is the only way to tap this investor base. 

“Loan guys are not sitting around as they have nothing to look at, they have couple FRNs every week,” said the banker. 

But one thing that plays a big part in CLO participation is the current state of the arbitrage between CLO liabilities and leveraged loan margins, which is challenging. 

“We haven't participated in any of the current deals. Primary is quite subdued, but I wouldn't say we have a deficit in opportunities,” said a CLO portfolio manager. 

Existing CLO structures have an easy gain from margin uplift on A&Es, but its much harder to make the arbitrage work on a new issue. The iTraxx Crossover has been rallying tighter this week led by more hope in US debt ceiling talks. Thursday saw decent tightening from 450bps to 436bps. 

With this week floating rate prints coming around in low 400 bps, new European CLOs ideally need a weighted average cost of debt below 250 bps across the structure, which with triple-As currently at 200 bps is unlikely, as Owen Sanderson notes in Thursday's Excess Spread. 

European high yield performed better than its US counterpart this week and is on a more tightening path. The CDX HY index only came down 2.25 bps on the week to 494.25 bps and the index is trading 61 bps wider than iTraxx Crossover, whereas it was only about 25 bps wider at the start of May.

For bigger funds that have diverse mandates, picking between fixed or a floating rate bond is much more agnostic and credit specific. Bond issues are either coming at par with double digit coupons, or at much lower fungible coupon and large OIDs, demanding different approaches from investors. 

“We would take a deep discount for anything levered up too high,” said the credit analyst. “For something 5x levered I’d rather see them secure a stable annual rate than take cash upfront but get a 10% coupon that is gonna make them blow up later.” 

Latest fund flows 

The global high yield funds recorded outflows, but these were limited in European-only and US-only funds, according to data from EPFR Global and Bank of America.

LBO at the door

New paper supply will remain muted as the M&A activity — the bread and butter of LBO deal creation — is still failing behind. “I don’t know yet when it will pick up, the pipeline is fairly limited and banks remain aggressive on terms,” said a second sellside banker. 

But, it is not just tumbleweed in European M&A. This week one take-private process unveiled almost €1bn TLB financing pencilled in, which could supply the market with an unusual offering later this year. 

Silver Lake Partners’ bid to take over German tech business Software AG is backed by a €950m term loan B underwritten by JPMorgan paying E+ 500bps while the bank is also providing a €100m RCF with a E+ 375bps margin, according to the offer document.

Software AG reported quarterly operating EBITDA of just €23.6m in its last results, meaning the leverage point for the TLB looks punchy. Lenders may have to rely on the company’s high growth and look to recurring revenues rather than more traditional credit metrics to get comfortable.

The acquisition package including equity contribution has capacity of up to €3.18bn, greatly exceeding Silver Lake's €2.4bn bid based on €32 per share (from just under €20 where it was trading before bid). Some shareholders have accused Software AG's management of giving the tech-focused private equity firm preferred treatment over a rival bid from Bain Capital, which would merge Software AG with Rocket Software and offer a higher premium at €34 per share, Bloomberg reported this week. 

Silver Lake already owns €334m of the company's convertible bond, which if converted would represent almost 9% of shares and also is backed by Software AG's largest shareholder (Software AG Foundation) 25% stake, giving the bidder over 30% of the vote from the needed 50% threshold. 

Another €500m leveraged financing might come to the syndicated market from the potential sale of Wellspect Health Care. Bloomberg reported on Thursday that private lenders and banks are negotiating to fund the deal with either an unitranche or a classic syndicated term loan B for the continence care specialist.

High Yield Primary

Lottomatica successfully printed a €1.12bn bond refi split almost evenly between floating and fixed rate instruments. The company received a confidence boost prior the launch of the deal coming off a two notch uplift on its corporate and facility ratings to BB- by S&P and one-notch pick up by Moody's to Ba3. 

Agencies appreciated Lottomatica's IPO of €600m on 3 May that reduced leverage, with the funds used to repay €100m of the SSFRNs due 2025 and fully clearing out the €400m Senior Secured PIK Toggle Notes issued in 2021. Net debt for the new deal was at 2.4x as of end of March, down from 3.3x including the PIK as of June 2022. Apollo still has a 67.8% majority stake in the company and public shareholders now hold around 27%. 

Lottomatica completed an IPO on 3 May 2023 at an price of €9 per share, the lower end of the offered €9-11 range, valuing the group at €2.27bn. The shares slid at opening, reaching as low as €7.99 a share (11 May) and still have not bounced back through the offer price, quoted at around €8 as of Friday’s open. 

Debt markets (for now) have given the Italian borrower a warmer welcome. Lottomatica placed the full offering with both tranches pricing on the tighter end of talk. The €565m SSNs came at par and 7.125% from IPTs in the 7.25% area. The €550m SSFRNs came also at the tight end of talk paying E+ 412.5bps (from 425bps) and 99 OID (98.5-99 talk). 

Notes traded up after pricing with the SSNs trading up to to 100.59-mid quote on Friday while the SSFRNs are also quoted up at 99.56-mid. 

“It is a rarity for CLOs to buy FRNs for a listed company with double-B rating” said the first banker close to the deal. “IPO pricing does not matter to the deleveraging credit story.” 

Lottomatica is a national leader by gross gaming revenue (GRR) in all three of its segments: online, sports franchises and gaming machines. Read more in 9fin's detailed Credit, Bond Legal and ESG QuickTakes published earlier in the week.

Solenis came across the pond to offer a $500m-equivalent of euro denominated SSNs, alongside $1.63bn SSNs and a $750m TLB, all due in 2028. 9fin previously reported that the speciality chemical business is prepping the transaction to fund the acquisition of Diversey for $4.6bn from Bain Capital, with Bain keeping a stake in the merged business. 

Bonds have IPTs in the high 8% area while the loan is talked at S+475bps at an OID in 97-97.5 range. Commitments are due Tuesday (23 May)

9fin's William Hoffman and Emily Fasold have previewed the solubility of both “chemical brothers”, since some investors were quoted not seeing a natural fit between the two. 

Solenis’ acquisition of water treatment company Clearon last August was already seen as deviation from its core business and that Diversey follows in that trend.

Sponsors are injecting around $2bn of new, rolled and preferred cash equity into the deal, which was recently increased in order to prevent Solenis from slipping to triple-C ratings, as 9fin previously reported. The new debt is rated B3/B-.

The preferred equity is a $438m 13% PIK note from Bain Capital, which will retain a stake in the business. The PIK note is callable at a price of 92.5 in the first six months of closing, the sponsors confirmed on a call with investors.

Platinum Equity (that was also recently ranked on the bad list on the 9fin's survey of sponsor preferences) said it is considering replacing that note with more equity if and when it is called and said that it would not replace the PIK with incremental debt, but told lenders it was not committing to that plan.

Investors also flagged inconsistent cash flow generation and relatively high leverage as cause for concern. The first lien leverage is 5x and net total leverage is 5.5x, and Moody’s said it expected the combined company to be cashflow negative in the first two years post-close. The management attributed that to a one-time $190m cost it will incur in the first two years to help set up its SAP software systems across the various businesses.

For a full breakdown of the businesses 9fin has also published Credit and Legal QuickTakes. 

German automotive supplier Adler Pelzer (AP) wrapped up syndication of its refinancing bond early in the week, increasing the deal size from €350m net to €370m. The 2027 SSNs priced at 9.5% and 92.5 OID, in the middle of the talk in the 92-93 range. The notes slid post-print almost two points and are currently trading around 90.2. 

As reported, the company might face strains on its already weak cash generation due to weak margins, but a €120m subordinated shareholder loan has helped reduce leverage by around a turn.

The deal also came with the unusual 4NC1 structure. However, with over 12 points (104.75 call minus 92.5 OID) of principal repayment to put into the break-even mix, there would need to be a significant business improvement to call the deal.

French cargo business Worldwide Flight Services has finalised its tender offer, following its purchase by SATS Group, accepting 91.28% of its 6.375% euro SSNs and 97.86% of its 7.875% dollar SSNs for repurchase, at 103.188 and 103.938 respectively. It will buy back the rest of the notes at the same price and redeem the tranches.

Leveraged Loans Primary 

Primary paper supply is thin in European leveraged loans and there is some softness in the air, with Modulaire’s €150m add-on pricing at the lower end of OID talk. Nouryon, however, priced its euro A&E at the tight end while US-dollar finalised wider of the IPTs. 

European diagnostic imaging and cancer care company Affidea was the only loan deal launched this week in the European market.

The healthcare firm is tapping the market with a €150m fungible add-on to its existing €600m TLB expiring in June 2029. The facility is expected to be rated B2 and B+ by Moody's and S&P and pays E+ 500 bps. 

Proceeds will be used for bolt-on acquisitions, to repay revolving credit facility drawings and general corporate purposes. Affidea came to market with the original loan in June 2022 to back its acquisition by Groupe Bruxelles Lambert’s (GBL) from B-Flexion. 

At the time buysiders were concerned about historically aggressive leverage and acquisition past but praised solid volume growth, underpinned by good inflows from the public to the private sector and expectation of uptick in volumes from pushing through the Covid-19 backlog of elective procedures. 

The loan priced at E+500bps and 94, tighter than the OID talk of 93.5. It has since traded up to around par.

Lender meetings start next week before commitments on Friday (26 May).

Dutch specialty chemicals business Nouryon tested the reaction with the market for the second time in 2023. 

Now, it has come to extend a much bigger chunk of its maturities while slightly pushing up leverage again, despite coming off a softer first quarter performance. 

Nouryon pushed out maturities on almost all of the existing €1.7bn TLB and at least $2.5bn from a $3.2bn loan, both due in October 2025. Both will have the new maturity date of April 2028.

The €1.59bn euro TLB A&E priced at E+425bps and 98 OID, at the tight end of the 425-450 bps talk. The $2.5bn piece priced at S+CSA(10bps)+400bps and wider 98 OID from initial talk in the 98.5-99 range. Both tranches may be increased prior to settlement with euro TLB up to €1.69bn, pending extension by an overseas international bank.

Not every existing lender could roll over and the book was also filled from new accounts entering the business. Nouryon was happy keep some stubs of the original TLBs in order to keep interest costs down.

Nouryon also made some eleventh hour documentation changes including the addition of a springing maturity and changes to MFN provisions.

The company managed to print even though its latest numbers are weaker than when it issued March's dividend deal, mainly because of lower order volumes due to destocking in the first three months of the year.

Adjusted Q1 23 EBITDA fell to €283m from €325m a year ago. Sales remained flat, and the company is still guiding to single-digit EBITDA growth in 2023.

Three lenders who spoke to 9fin said they are still constructive because the company is more resilient against weaker demand in chemicals than its peers, and its IPO goal in the future gives them confidence that deleveraging efforts will stay high on the company's to do list. Read more in 9fin's full preview of the credit. 

The UK's provider of modular workspace provider Modulaire had to pay up a little more to get its €150m fungible add-on done. The new loan pays E+450 bps as existing but the 94 OID was the wide end of the 94-95 talk. Modulaire tapped the market to fund acquisition of the domestic peer Mobile Mini UK. Modulaire paid £335m (around €378m) on 31 January for the asset in a deal that was leverage neutral and partially funded through a €46m equity injection.

The new capital structure is based on a €571m Pro Forma Run Rate EBITDA LTM to December 2022 that gives 4.9x senior secured net leverage (from 4.6x level pre transaction) and 6.2x total net leverage post IFRS-16 (unchanged from 6.2x).

Lenders weighing up the company’s “uncommunicative” past, as well as exposure to cyclical end-markets with the threat of recession overhead before deciding to make space for additional paper. 

Three buysiders that spoke to 9fin were in favour of the newest acquisition, but still felt sour about the previously undisclosed Holdco PIK that company unveiled to repay in its February 2022 add-on. Some also flagged weak cash generation but see a mitigant in strong diversification with 88% recurring revenues and long-standing customer relationships, as well as inflation-linked pricing in leasing contracts. 

Movers & Shakers 

The biggest loser this week in European bonds was troubled French supermarket chain Groupe Casino.

The €900m 3.25% SUNs due in March slid 3.97 points to 27.46-mid quote in a week. The €525m 5.25% SUNs due in April fell 3.23 points to 24.25-mid quote and the €400m 6.63% SUNs due in January 2026 also were hurt coming down 3.13 points to 25.13-mid quote in a week. 

Bondholders of Casino’s EMTN notes have been organising, appointing DC Advisory as financial advisor and Ashurst as legal advisor, as reported by David Orbay-Graves earlier this week. Bondholders in these tranches were invited to a call this Friday at 1.30pm.

Casino’s EMTN notes include €509m of 4.498% March 2024 SUNs, €357m of 3.58% February 2025 SUNs and €450m of 4.048% August 2026 SUNs. 

The beleaguered retailer is out with waivers from various creditors to get permission to launch conciliation proceedings, a French pre-insolvency process, without triggering a default. Casino extended the consent process on Tuesday (16 May), due to expire Friday (19 May), to next Tuesday (23 May).

The worst performer from euro-denominated issuers was US pharma manufacturer Catalent. The company has seen its 825m 2.38% SUNs due March 2028 fall almost five points to 75.2-mid quote on Friday, after it significantly lowered expected Q3 2023 guidance in the latest business update. Catalent now expects sales between $4.25bn-$4.35bn (from $4.63bn-$4.88bn), Adjusted EBITDA almost halved to $725m-$775m (from $1.22bn-$1.3bn) and Adjusted Net Income to a $187m-$228m range (from $567m-$648m).

On the opposite side, bonds of Novafives pleased the investors the most earning the best performer spot for the week. Notes started rally on Thursday (18 May), following a report in L’Agefi that public sector investment bank Bpifrance is contemplating taking an equity stake in the French engineering group.

Novafives is owned by CDPQ, PSP Investments, with a legacy stake held by Ardian.

Novafives’ €275m E+ 450bps June 2025 SSFRNs jumped 5.97 points in a week to 91.76-mid quote on Friday and the €325m 5% June 2025 SSNs picked up 4.93 points to a 92.41-mid quote. 

As reported in February, Novafives posted strong guidance for 2022 and 2023 EBITDA and three lenders hope a refinancing of its 2024 and 2025 maturities may have gotten then closer to the reach.

The company is set to report Q1 numbers on 30 May, according to a buysider.

HY risers (price increases)

HY decliners (price decreases)

Loan prices shown sharp divergence when split by sectors, with consumer staples up 0.2-points on average and communication down over 0.3-points.

The worst performing loan was the £285m TLB due in September 2026 from UK's Advanced Computer Software, which slid 9 points to new 84-mid quote. 

The Vista-owned company has been already downgraded to triple-C by Moody's in December because of weaker than expected operating performance and cash generation over in 2022, and Moody's forecasted at the time that its credit metrics and liquidity will remain weak over the next 12 to 18 months. The company’s loan is quoted at the lowest level since issue, having fallen to 85 during the December downgrade. 

After months of bad news Biscuit International calmed buysiders with news that it received a €100m commitment from sponsor Platinum Equity earlier this year to help with liquidity, as reported by 9fin earlier this week. Both its €205m and €490m due in February 2027 picked up 3.84-points in a week to a new 82.38-mid quote. The loans are quoted above the 80-level for the first time since last June. 

The UK based ticket seller and exchange Viagogo lead the best performing loan this week, with its €425m TLB due February 2027 up 6.75-points to a 82.25-mid quote.

Loan risers 

Loan decliners

Earnings Digest

Pharmaceutical company Clinigen released lukewarm Q3 financial results with both revenues and gross profit behind budget at 21% and 4%, respectively. 

Nevertheless, investors could find solace in the news that management expects to repay the company’s £140m second lien through the sale of cancer drug Proleukin, expected to complete this month, 9fin reported earlier this week. This will increase senior secured net leverage to 4.5x but reduce total leverage to 5.8x.

The price on the company’s €735m April 2029 TLB wobbled briefly around the earnings release but resumed its steady increase in line with broader improving markets. It was quoted at 97.88 on Friday, according to 9fin data.

McLaren might be running out of highway because according to 9fin calculations, the company is likely to run out of cash by Q3 23, at the current FCF burn run-rate. The British supercar released their Q4 22/FY 22 results on Thursday (18 May) alongside their Q1 23 report. High cash burn is still straining performance in Q1 23 with a further inventory build up due to “logistical issues” not helping either.

Shareholders are still supportive of the company with a £70m in equity funding raised in March.

The $650m 7.5% August 2026 SSNs picked up two points to a 84.5-mid quote on Friday following the earnings update and are on the highest level since September. 

French medical laboratory company BioGroup (B2/B/B), also reported weak results for FY 22 despite its acquisition spree during the year. 

The group reported a 14.4% fall YoY in actual revenues to €2.055bn, and a 22.3% decline YoY in pro-forma revenues to €2.12bn (pro-forma for nine closed acquisitions in 2022) due to a significant decline in Covid-19 volumes and pricing.

However buysiders expected these results and the bond and loan prices remained unchanged. “Weak as expected and not surprised after numbers from Cerba and Synlab. Routine holding up ok and Q1 trading seems fine too,” said a buysider invested in the business. 

“I wasn’t surprised, the company was always going to see a margin decline as Covid-19 testing became cheaper and a less significant part of the business,” said a second buysider. “The organic growth decline is due to lower tariffs on routine testing. The company seems to be integrating the M&A well and I am not worried about the business.”

Upfield (Flora Food) appears to be on a upwards trajectory and delivered strong Q1 23 results on 17 May due to the annualisation of pricing momentum carried over from H2 22. Q1 22 was a particularly weak comparator, owing to pricing lagging behind inflationary headwinds, making YoY comparisons optically very strong.

2023 contract discussions are closed and fixed with customers, bar some exceptions, and raw material hedging means the company is not set to benefit greatly from any softening of commodity prices. Bonds and loans from Upfield remained unchanged on the earnings news. 

Follow more updates from the current earnings season in 9fin's latest Earnings Digest.

Forward pipeline

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