“It’s definitely a better market now, but these [deals] are not any new surprises, it is refis that would [have] ended up happening anyway,” said a syndicate banker.

Deals were positively received by a still malnourished market , with able to achieve a significant upsize and all tightened from initial price talks, but it’s an open question as to how long this hot market window can last. The iTraxx Crossover index this week showed that volatility has not entirely abated, as its performance diverged from primary bond performance and ended the week at 447.5bps, flexing 19 bps wider on the week.

With a lack of new deals ready to be deployed, primary business might soon run out of fuel after refis are completed.

“I don’t have any new M&A coming out soon, it is very quiet on new deal creation,” said the banker.

Luckily for at least April the pipeline has plenty to offer, as reported in 9fin’s European Lev Loans Q1 23 report. Issuers across retail leisure, services, industrials and software are yet to launch their transactions.

From 9fin’s A&E tracker (which is available to clients here or you can request here if you are not a client), Alloheim, the German elderly care business, is still expected to come to market with an A&E to push out maturities on its €500m TLB maturing in February 2025.

“On the bond side next week will be a new paper deal alongside some refis. Base rates are high, but there are still pretty good spreads for bonds,” said the banker.

HY primary

High Yield primary had its most eventful week of the year. Five issuers printed with all managing to tighten from initial price talk.

One surprise was Czech headquartered gaming operator Allwyn dropping its more rising-rates-resilient floating rate tranche for fixed-rate only. Initially, priced 200bps wide of its existing 2027s, Pricing tightened to 7.25% (from 7.50% area IPTs) for the €665m SSNs and to 7.88% (from 8% area) for the US dollar SSNs.

EHY sterling primary reopened with UK Hotel operator, Travelodge, launching a £550m-equivalent 5NC2 sterling tranche and a 5NC1 euro-denominated FRN. Owned by GoldenTree since 2012 (now sole owner, after buying out GS and Avenue), when it was last restructured, Travelodge went through a series of rental renegotiations and lease restructurings during Covid. The fixed tranche eventually priced at 10.625% from IPTs of 10.75-11%, with the €250m E+550 bps FRN seeing the OID improve to 97.5-98 from 96-97.

Despite ESG concerns (you can request a sample of our ESG QuickTakes if you are not a client), regarding future potential opiod litigation Gruenenthal, the German pain relief pharma company managed to print €300m of 6.75% seven-year SSNs at 6.75%, down from IPTs of 7%. Clients can read our CreditQT click here or you can request a full report package of Credit, Legal and ESG QuickTakes here.

CABB, the global chemicals manufacturer issued €670m of five-year SSNs and SSFRNs to refinance its existing notes. Despite concerns about cash flow generation and soda prices, books were 3-4x oversubscribed, driving in pricing from 9% on the fixed tranche (€420m) to 8.75% at par and the E+ 525 bps FRNs (€325m) at 97.5 from 96-97. Our CreditQT is here, ESG QT is here, and LegalQT is here or is available on request for non-clients.

Refinancing transactions are offering an improvement in pricing for buysiders, particularly for some sectors.

“We played Allwyn and gaming now always requires a premium,” said one buysider.

The only new name in high yield this week was Permira’s leveraged buyout of plasma therapy businesses Kedrion and BPL. The underwritten financing from last year was part of 2022’s famous vintage of hung deals that leads managed to clear out in their spring cleaning.

Morgan Stanley provided an $865m bridge facility to allow Permira and the Marcucci family (Kedrion’s founders) to close the deal in September. The remainder of the $2.5bn purchase price was funded with $1.5bn of equity and $165m of vendor financing.

Now the bank has seized on a firmer tone to offload the bridge debt in the high yield market, writes David Bell in 9fin’s preview of the credit.

The $790m SSNs priced with 6.5% coupon and 84 OID to yield 9.966% and narrowly remained a single-digit yielding issuer. Price talk started in the 10% area.

However, to get deal through the issuer has conceded on more than a couple of covenant terms. Before pricing, leads cleaned up the docs accordingly:

• Build-up starter basket for consolidated net income has been removed
• Ratio-based restricted payments basket was reduced to 2x total net leverage from 2.5x
• Permitted investments basket was lowered to 2.5x from 3x total net leverage
• General restricted payments basket was reduced to the greater of $55m and 20% EBITDA (from $70m and 27%),
• Permitted investments in JV and in unrestricted subsidiaries were removed
• Restrictions on intellectual property were removed
• Incurrence of debt based under available restricted payment capacity in case of an IPO was removed

Kedrion also priced a $75m TLA tranche paying E+650bps with an undisclosed OID.

The only signposted bond deal left to price is the small €250m SUNs tranche from the Polish headquartered debt purchaser KRUK. It has mandated Arctic Securities and DNB Markets for €250m of senior unsecured notes. Moody’s assessment is here.

Leveraged Loans Primary

Loan primary is also heating up, with three borrowers having successfully extended their maturities with an upsize while new entrant GSF ended up being the first fully publicly syndicated European LBO of 2023.

French cleaning business Group Services France (GSF) cleared out a debt package first structured in summer 2022 to fund an LBO takeover of the family-owned business by TowerBrook Capital Partners.

Even though the credit was not entirely spotless (in the views of some), most buysiders were lured in by a shiny all-in 9.5% yield (according to one buysider), while a sticky customer base, track record of organic growth and low-hanging fruit of efficiencies cuts under the new owner all support a decent investment case. This was especially true given the timing of the deal when new paper is scarce in primary.

Those that declined the credit did so citing a perceived lack of diversification in services offered and in geography. GFS is a solely French operator, cashing in mostly on low-margin cleaning support where there are low barriers to entry.

The final pricing of E+500bps margin landed at 95 OID, tightening from 94 area. Buysiders also won one small victory on documentation when the final terms removed the second step-up of the margin ratchet at 3.1x leverage.

The Netherlands-based discount retailer Action (Ba3/BB-) managed a multipack sale upsizing the original minimum €1.5bn extension on its outstanding loans to almost double at a €2.5bn final size while still managing to tighten the final margin to price at E+375bps (from 400bps-375bps) and 98.5 OID.

The BB rated business backed by multi-year growth dragged buysiders to the check-out, confident that the low-cost company’s good fortunes will continue in a time of high inflation.

“It’s one of the easy ones,” said one buysider. “We declined the name multiple times when it was Single B, but its performance was just so good since the pandemic, it’s a favourite in the portfolio now.”

“I introduced this as the stronger retail credit in European High Yield to my credit committee,” said a second buysider, before adding: “Though I suppose that’s not saying much.”

The Spain-based business outsourcing and call centre firm KronosNet (B2/B+) have also taken out more than double the planned amount of its TLA that it replaced with fungible TLB add-on. The initial €75m offering got upsized to €158m on the back of better than expected responses from investors, including from new money orders. The deal priced with an undisclosed OID, but this could not be lower than the MFN threshold on the original TLB that is set at 92.

An existing MFN at 92 on the existing TLB constrained pricing, a remnant of a somewhat rocky syndication in September last year. The company had to concede on both pricing and docs to wrap up a slimmed-down TLB — funding a merger between Comdata and Konecta — doubling its MFN provision to 12 months on both the TLB and an upsized TLA. See other docs changes here.

KronosNet is following in the footsteps of names like Stark Group, which also came to market in recent weeks to repay a TLA. The company had been forced to ink that at the end of last year, in the midst of wider market strain, to support its acquisition of UK building supplier Jewson.

This new add-on is marketed on LTM run-rate EBITDA at December 2022 of €302m, a gentle incline on June 2022’s €278m, according to buyside sources.

The loan primary looks set to remain fairly busy next week with two European issuers with live A&E transactions and one US borrower that is placing a €-denominated tranche.

The largest amount of paper on offer is from Dutch business service firm TMF, which is extending its debt to take out the second-lien tranche, repay its revolving credit facility and to fund merger and acquisition activities. 9fin reported on 13 April that the borrower is planning to tap the market with a refi.

The loan comprises a €950m TLB that will extend the firm’s existing TLB due in May 2025, and a new minimum $400m TLB while both will mature in May 2028.

“[It is a] good business, very resilient revenues and difficult to see it going backwards unless there's a regulatory change in key jurisdiction. Even then it's more diversified geographically than in 2018,” said one buysider looking into the deal.

Interest burden will almost double for the company that priced its €950m 2024 TLB back in 2017 at E+325 bps and par. Funds backed CVC’s acquisition of the company, having agreed to buy the firm for €1.75bn. Its €200m 2024 2L, meanwhile, came at E+ 687.5 bps and 99.5.

Buysider expects M&A strategy to become more aggressive, but notes that it was historically well executed. Documentation might also end up being a talking point.

“Current margin ratchet levels are a joke. But all in all, one of the better credits in the market and we will likely roll into new deal,” concludes the buysider. More to follow in 9fin’s full preview of the credit next week.

Movers & Shakers

The secondary markets were quiet this week as buysiders mostly concentrated on a busy primary. No BWICs were offered for the second week in a row.

The biggest loser from the euro-denominated issuers in the European high yield market was the Spanish automotive supplier Grupo Antolin, which has seen its €390m 3.5% 2028 SSNs slide almost 2.2-points to 70.36-mid quote.

The biggest riser was the Serbian-headquartered telecom provider United Group, whose euro-denominated bonds rose between 3.78 to 1.94 points over the week on news that the company is kicking off a $1bn sale of part of its tower portfolio in Bulgaria, Croatia and Slovenia.

9fin’s legal team has put together this week a detailed covenant analysis of the impact of the towers disposal. We will be updating this analysis following the release of FY22 earnings, complete your details here if you would like a copy of the updated analysis.

On the loan side, all industries enjoyed an uplift apart from a very small retraction in Communication Services. The best performing sector this week was Utilities that increased almost +0.3 points:

The best loan performer was the UK’s e-commerce firm The Hut Group (THG). The company — a mail order and online seller of beauty and wellness products — confirmed news of a potential Apollo takeover even amid a £495m loss in its recent FY 2022 trading results. THG has seen its €600m 2026 TLB rise 7.6-points to a 92.2-mid quote this week, the highest level since November 2022.

Bad news hit CLO lenders into the Dutch food producer Ecotone on Friday, with the company downgraded to triple-C by S&P, prompting fears that a sell off on the name from CLO-holders might be imminent. The company is also on negative outlook from Moody’s, affirming it’s one notch step from triple-C territory on 6 April.

Please get in touch team@9fin.com if you would like samples of any of our news stories mentioned in this week's wrap.