“With that margin, this was a really attractive deal for us,” said one buysider. “We put in a much larger order for this than our norm.” A second buysider concurred: “Just put your money in.”

The deal is also one of a slew of recaps in the market at the moment, following Germany-based hair products firm Wella and Spanish sports media company Dorna. Here, sponsor Carlyle, who bought the business in 2016 backed by a €295m E+475 bps TLB, is drinking down a €100m dividend, notably leaner than Dorna’s own €400m feast. The TLB also refinances near-term February and March 2023 maturities: “You don’t like to see a recap, but the refi is a credit positive,” said the second buysider.

The deal is marketed on €123m adjusted EBITDA at December 2021, with adjustments including those for increased sea transport costs, and 4.2x net leverage, according to three buysiders, with the structure also including €38m of other debt and €20m of cash. 

The loan includes a three step-down margin ratchet starting at 3.6x net leverage. Alongside is an ESG ratchet of +/- 5/10 bps on KPIs related to the reduction of carbon dioxide and nitrous oxide emissions, as well as the company’s external cullet (waste glass that has been collected or reprocessed for recycling) rate. Two buysiders also said they were impressed with the ESG work Saverglass has put in place, calling it “considerable”, including the forward-looking KPIs the company is following.

Outside the structure, the company is also issuing a €60m senior secured CapEx facility and €70m revolving credit facility (RCF). Saverglass has around €162m of convertible bonds (including accrued interests) currently due 2026, whose maturities will be pushed back six months as part of this transaction, according to Moody’s.

CapEx hangover

Central to this deal is Saverglass’s aggressive CapEx plan for the coming years, buysiders report, expected to weigh materially on cash flow. Requiring around €165m between 2022 and 2026, the plan will result in free operating cash outflows of between €20m and €40m, per S&P, and will be funded with the RCF, CapEx facility and cash. 

The plan funds a new furnace in Mexico to support increased spirits demand in North America. In 2022, around €94m of €125m CapEx requirements will go to this new furnace, according to two buysiders. 

However, investors seem comfortable with this plan, especially when it is accommodated in the deal’s pricing. “The CapEx will generate returns and there’s good visibility on those costs from management,” said the second buysider. “They’ve also pre-sold up to 80% of volumes related to that furnace, which is a big mitigation of risk.”

“The CapEx plan is very aggressive, so there won’t be any deleveraging in the first few years, but it should come after that,” said a third buysider. “This is a company that has performed well in the past and once the Mexico plant is up and running, I can see this doing really well.”

“The story is clear and the investors have bought into it,” said a source close to the deal.

Whine and dine

For some on the buyside, Saverglass is clear-cut as the credit itself, with positives starting with the non-cyclical, steady demand for its products. “You can be really confident in the demand picture here,” said the second buysider. “Covid closures of bars does have an impact, but, honestly, not much gets in the way of demand for alcohol.” Reflecting this, the company performed well through the pandemic, with the topline declining less than 1% in 2020, before rebounding 18% in 2021 to €585m.

Buyside compares Italian firm Guala Closures, which produces caps for spirit bottles, and whose revenues fell 5.7% to €572m in 2020, but similarly rebounded back to €629m by LTM September 2021. 

Saverglass is further supported by, as the third buysider puts it, a “great customer base. You name it, you’ve probably drunk it.” Buyside further describes those customer relationships as sticky, stretching back two decades with names such as Bacardi. “They have long-standing relationships with these companies, which offsets some of the pricing power the big ones have,” said a fourth buysider.

However, two buysiders flag customer concentration as a potential pain point for the business: its main customer, vodka producer Grey Goose, represents 15% of 2020 sales. This is balanced by Saverglass having signed a ten-year exclusive supply agreement with Grey Goose in 2020, “which does smooth out that wrinkle,” the fourth buysider said.

Another concern buyside highlighted was Saverglass’s susceptibility to increasing freight and energy costs, although they describe glass manufacturers as largely isolated from raw material cost hikes. “The main volatility to EBITDA and margins is going to be the lag in passing those rising costs on,” said the second buysider. “The company is able to put in fairly aggressive price increases, so they are catching up to those costs, but it’s going to be an ongoing macro issue to keep an eye on.”

Doc dregs

As always, the buyside is pushing back on some areas of documentation, with some investors calling out transfer provisions and Most Favoured Nations (MFN) protections as weak. Here, MFN provisions are linked to just margin, not yield, though set at the market standard of six months. Incremental facility provisions include an inside maturity carve out of 100% EBITDA, meaning up to a turn of debt can be raised as an additional facility with shorter maturity.  

“Unfortunately, these features are more common so are hard to push back on. It’s not market standard, but there is market precedent,” said the second buysider.

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Funds from the TLB will also refinance a €301m TLB due March 2023; a €20m RCF and a €50m CapEx facility maturing in February 2023; and €25m of French government loans and €14m of a bilateral facility due March 2022. 

Barclays, Crédit Agricole CIB and Societé Générale act as joint physical bookrunners, while CIC, Mediobanca and Royal Bank of Canada act as joint bookrunners. Societé Générale is the ESG advisor, while Barclays acts as rating advisor and Crédit Agricole as agent.

Commitments are 4 February. 

Carlyle, Credit Agricole and SocGen declined to comment. Saverglass and Barclays did not respond to a request for comment.