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Huw Simpson

Kat Hidalgo

It’s been clean lines and functionality this week, with several minimalist Scandinavian style deals mandated.

The first was Axactor, a publicly-traded debt purchaser headquartered in Oslo. The group announced plans for a five-year offering of up to €300m Senior FRNs (with a borrowing limit of €400m, credit rated B3/B), to repay an existing €140m bond, the group’s local Italian debt, and for general corporate purposes.

Axactor underwent a balance sheet restructuring in Q1 2021, raising €51m in equity, refinancing an outstanding bond with €200m of new Senior Notes, and refinancing the chunky €545m RCF -  which notably remains €464m drawn. The deal comes with a conservative Norwegian-law covenant package, including financial maintenance covenants. Clients can read our full Legals and Credit QuickTakes for more information.

Elsewhere, BEWI, the Nordic packaging business (or sustainable ‘insulation solutions’ provider) mandated Carnegie, DNB Markets and Nordea as bookrunners for inaugural max €160m sustainability-linked SUNs due 2026. Investor meetings started on Monday (23rd), with expected proceeds to refinance two existing senior secured bond loans for a total of €140m, with the remainder to be used for general corporate purposes. IPTs were sent out on Tuesday for E+350 bps, before pricing at E+315 bps.

The group mainly operates across northern Europe, providing raw components and insulation for packaging (including food) as well as insulation-infrastructure to end markets.

Friday saw two further mandates; sustainable energy producer European Energy, and Crude tanker company Euronav Luxembourg.

Copenhagen based European Energy has planned meetings for an expected €250m green Senior Notes due 2025. Proceeds from the notes must be used to finance or refinance renewable energy assets and projects, something which is perhaps to be expected given the firm's mandate (the group builds, operates, and then often sells its energy farms). Investor calls will start on the 30th August.

Euronav in comparison operates crude oil tankers, and are looking to offer five-year USD Senior Notes, which will be used to refinance existing debt and for general corporate purposes. Calls will start on the 31st August.

Holding to the theme, shipping has been in focus this week here at 9fin. In our inaugural ‘9fin climate series’ publication, we question how aligned the industry is to climate goals - and you can read the piece in full here, where we outline the LevFin leaders and laggards.

In 2018, the UN International Maritime Organization (IMO) sought to change the industry’s course with its new strategy for a green future, targeting a 50% reduction in GHG emissions by 2050 vs 2008. In stark contrast to this target, the IMO’s fourth GHG study actually estimates a 50% rise in emissions by 2050 vs 2008, under a business as usual scenario. The International Chamber of Shipping (ICS) reports that the IMO target would require carbon efficiency improvements of 90% when global trade growth is factored in. Despite the monumental scale of this task, if achieved, the IMO target will still considerably fall short of the Paris Agreement’s 1.5°C pathway as well as EU Green Deal targets.

In a well timed announcement, the world’s largest liner Maersk announced it would take delivery of eight carbon neutral hybrid ships in 2024, which run on both traditional bunker fuel, and ‘greener’ methanol. As we note, although the ‘Fit for 55’ EU proposals support the use of biofuels, there is no miracle pill - biofuels remain linked to deforestation, and LNG contains high levels of methane, a gas with a global warming potential 25 times that of CO2.

With no counter-bid yet proposed by the Fortress consortium, CD&R remain the front-runner in the ongoing battle for Morrisons. In addition to the attractive asset base, much of the story revolves around potential value in the group’s 330 fuel stations.

As the FT reports, selling fuel has traditionally been viewed as a loss-leader for supermarkets, compensated by increased sales for the supermarket. Since then however, competition from German discounters, and better run dedicated petrol stations (i.e. EG Group) forced many large supermarkets to revisit the economics of fuel sales.

Highly cash generative due to positive working capital dynamics (through flow means little inventory is held at any one time, and buying power helps with supplier terms), fuel stations also benefit from higher margins than supermarkets, and covid has driven increased basket sizes as consumers seek greater convenience from ‘24/7’ stores.

We’ve also seen the bidding war spill over to other competitors. The Sunday Times reported Apollo was in the running for Sainsbury’s - leading to a pop in the share price on Monday morning.

The market is taking a deep breath, in this final week of August, with no deals left in the market, ahead of greater exertions in the first week of September.

Buysiders are rubbing their hands together for what’s expected to be yet another deluge of primary.

Several have told 9fin there is a hefty pipeline to end Q3. Telecom deals are expected to come out in full force, led by Masmovil. Spain’s fourth largest telecoms provider is buying Eskaltel, a Basque competitor, after it won 98% of the shares in a takeover bid. The combined company is expected to achieve €150m in synergies by 2022, according to Cinco Dias, and has already sold off its TV division for €32m.

Alongside a €250m RCF, Masmovil is expected to raise an €800m TLB, pricing at or inside the existing E+425 TLB, according to LPC.

In addition to Iliad's HY participation, which is to pay off a €3.6bn bridge loan from founder and billionaire Xavier Niel, according to LPC, the sale of Virgin Media Ireland (B2/B+) by Liberty Global is also likely to require some LevFin support. The company, which was expected to suffer from neglect by its parent amid the mega merger between Virgin Media and Telefonica’s O2, could be sold off for more than €2bn, according to The Times.

Amid mixed construction performance, as sentiment in the UK bounces up and down, and solid growth is predicted in the US, PE firms are gobbling up building materials businesses, with one analyst in the sector expecting an extremely busy September.

Deals coming to the market will include Modulaire, which has been acquired for $5bn by Brookfield from TDR Capital. The infrastructure and modular products and services provider has a range of existing HY bonds, the lowest-paying (€190m senior secured FRNs) of which offers a 6.25% margin, and the highest-paying ($305m SUNs) offering a 10% margin. All its bonds are currently indicated at least 101.

Still in the building sector, but in property restoration rather than construction, Polygon has been sold by Triton Partners to AEA Investors. The business’ Q2 earnings were positive as sales increased by 22.1% YoY and EBITDA rose by 16.9% YoY, though Fitch has put the company on negative watch due to anticipated releveraging through the buyout.

Also in industrials, one buysider is anticipating DexKo, one of the larger deals expected in the sector in Q3. A recreational vehicle parts manufacturer, the business will bring loans to market to support its $3.4bn acquisition, again by Brookfield, according to the buysider. The business has excelled during the Covid-19 pandemic and is highly cash generative.

A variety of companies will continue to make the healthcare sector one of the most active, and “boring” sectors to look at in 2021, as a second buysider said. Continuing a 2021 investor favourite, labs business will bring yet more positive paper to credit desks.

Cerba, the French labs testing business, will be back to support the €1.2bn acquisition of Italian testing group LifeBrain. The business was in the market earlier this year to support its acquisition by EQT, which was lauded by the second buysider for putting in a significant equity cheque. Cerba issued both bonds and loans, earlier this year, with a €1.525bn TLB offering a margin of E+375 bps for the B2-rated business.

The company will be bringing both bonds and loans to support the potentially all-debt acquisition of the business, said the buysider, who was bullish on the omnipresent need for Covid testing.

The French labs debt activity wave is now crashing into neighbour Germany. Omers Infrastructure and Goldman Sachs Asset Management will also be acquiring Amedes for €1.8bn, according to Reuters.

A variety of other sectors will flourish, including technology and food businesses, but for now, buysiders are focused on secondary, during this calm before the expected storm.

Overall movement in Secondary was fairly flat this week, gaining +0.05 pts (48% +0.26 pts | 46% -0.16 pts). Industrials were up +0.13 pts (+0.27 pts on the month), while IT and Energy saw the greatest losses at around -0.08 pts (both -0.45 pts on the month).

In single name moves, beauty product manufacturer Coty reported Q4 YoY revenue growth of 81%. All regions returned YoY growth, with particular strength in the US and China markets, and the group’s ‘prestige’ segment. The company also confirms its intention to pursue a partial IPO of its Brazil business, which if successful will ‘help advance Coty’s deleveraging agenda’. The USD notes gained an average of +1.8 pts, with the EURs up +0.9 pts.

The iTraxx Europe Crossover retraced back to around 232 bps, after widening to around 239 bps last week.

Despite most buysiders speaking to 9fin discussing the starring role of the secondary market in August, no major sell offs have reached the headlines and the market has once again stayed reasonably flat.

Arvos Group was our biggest riser this week, with a +2.5 pt gain over the past week. The industrial air heater supplier issued a €130m TLB in April 2017. The B/B2-rated tranche pays E+450 bps.

Until the onset of Covid-19 the bonds held up, wading between above par and 95; but Moody’s left Arvos out in the cold, changing its outlook for the business to negative, though affirming its B3 CFR, leaving the loan to trade at 77 at its frostiest.

After a brief respite, and a price bounce up to the 90s in the summer of 2020, the company was put on a ratings review, and then downgraded to Caa1 by the ratings agency in January 2021 and again to Caa2 this July, with fears around Arvos’ capital structure.

The loan had its maturity pushed out from August 29th 2021 last year to August 2023, and the thinking behind the amend and extend was to take advantage of a global recovery and sell off chunks of the business at a reasonable valuation, according to one market source.

Said the source: “The key here is to think about buyers: PE buyers probably won’t go for it and I can’t think of any good trade buyers. Someone would buy it at a very low multiple, which would not provide enough to pay off the debt here.”

But despite this, the price of its instruments has risen this week. While buysiders have noted the ESG risk associated with a company, the chief end market of which is the coal sector, this buysider noted that coal was going to be around for at least another decade, with the likes of China still building new coal mines. “If there’s still value to be extracted until renewables are fully ramped up, that should be considered.”

Our biggest faller, higher education group AD Education saw its E+500 bps €207.5m TLB drop a point to 99. The loan was issued at 98.5 this March, after flexing wide from initial guidance of E+425 at 99 OID.

LevFin Wrap - Norse deals navigate quiet waters, while shipping faces a low-carbon diet

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