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Fat Bottomed Boats Don't let the Rockin' World Go Round

By 9fin
Book open Reading time: 11 mins

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“Fatigue” is the word of the week. Leveraged finance has been on a tear since the beginning of the year, with 146 EUR/GBP HY bonds and Lev loans printing. We’ve spoken about welcoming conditions, and issuers have clearly taken advantage in droves - hoping to match demand with fresh supply. 

So how have these instruments performed?

Consumer Discretionary names are the clear winners, trading up an average of +1.7 pts since issuance across 16 different instruments. Rekeep 2026s were up at around 106 on Thursday, while Verisure continues to perform, more than +3 pts over the reoffer. Financials (+0.9 pts) and Utilities (+0.9 pts) also made notable gains. Kloeckner Pentaplast holds the ignominious low (-4.9 pts on the SUNs), while Danaos, Q-Park and AA are all up more than +3.0 pts.

By rating, steady BBs were fairly flat, up just +0.1 pts, and CCC names saw +0.3 pts on average. Runaway winners were the Single B and Unrated names, both gaining an average of ~0.7 pts from reoffer.

High Yield Primary

Announced last week, Advanz Pharma’s $1.02bn dual currency offering launched officially on Monday (B3/B-/B). Proceeds will finance the acquisition of the UK drugmaker by Nordic Capital for $2.1bn, implying an EV multiple of 8.7x with a $955m equity cheque. Existing owners GSO, Bybrook, Solus, CapRe and Barings will exit the company, after taking ownership following the 2018 restructuring which reduced debt by $2.4bn.

Tranches on the 7NC3 Senior Secured Notes settled at £335m for 6.25%, and €475m for 5.00%, alongside the €305m E+500 TLB (OID 99). Unlike many recent deals, little progress was made versus IPTs, which were in the low 6s and 5s for the GBP and EUR notes respectively.

Legals failed to hit the contentious heights of recent deals, however there remain some interesting elements. Most off-market is the presence of ‘no worse’ language in the Permitted Investments basket, allowing for either a leverage or a 2.0x FCCR test. Elsewhere, portability is set close to opening leverage (5.25x vs. 5.2x opening), and EBITDA add backs are uncapped, with a generous 36-month time limit.

Evergreen Flush

In both a green and euro debut, aluminium flat-roller Novelis announced new financing to invest in renewable energy and pollution prevention. The US based firm priced €500m in 3.375% Senior Green Notes due 2029, which together with cash on hand will refinance a portion of the outstanding $1.8bn Term Loans. An amount equal to the offering will finance new or existing green projects.

Sustainalytics comments on the environmental benefit of using recycled metals, which require 95% less energy, enabling the same reduction in emissions. The group boasts of accounting for 17% of global aluminium supply for 2020.

Public Power Corporation, the Greek electricity giant, had a second run with its €650m 3.875% Senior Notes due 2026, announcing a €75m fungible tap on Monday. The sustainability linked notes upsized in bookbuild, and priced a €125m tranche at 100.75 same-day (B/BB-).

German shipping liner Hapag Lloyd placed €300m of its own sustainability linked Senior Notes, which priced on Friday. The seven year notes will pay just 2.5% (B1/BB), and proceeds will redeem the existing 5.125% Senior Notes due 2024.

Criticism remains over self-set targets for sustainability linked coupon step-ups, and Hapag Lloyd’s 25 bps is just half of PPC’s 50 bps. It’s worth noting that the sustainability target - of a  60% fleet reduction in CO2 intensity by 2030 - is backdated to 2008. The indicator used to track this, the so called Average Efficiency Ratio (AER) stood at 11.68 in 2008, and is expected to fall to 4.67 by 2030. However, the OM states that AER in 2020 was already 6.95, meaning the company has already achieved 40% of the target.

Group CFO Mark Frese commented “Now we need to keep our own ambitious sustainability targets for CO2 intensity firmly in sight and achieve them step-by-step”. 

Freight rates have spiked in recent months, notably China to Europe routes. Bloomberg reports that the maritime cost of shipping from Hong-Kong to LA has quadrupled in the last year. Timing for the deal is optimum, and as Fitch notes, the current rates are unsustainable in the medium term.

On Tuesday the ‘MV Ever Given’ (Evergreen) containership became stuck sideways in the Suez Canal, prompting long delays in the world's fourth busiest shipping lane. Hapag released a statement today, detailing the six vessels affected, and a further six re-routed via the Cape of Good Hope.

The final green, from Scandinavian urban developer YIT Corporation priced on Thursday, offering a two parter green Senior. The unrated issuer placed €100m in fixed and another €100m in floating notes, paying 3.25% and E+310 respectively. A €100m PNC5 green hybrid was also launched in conjunction with the offering, pricing at 5.75%. Green structurer Danske Bank joined with Second Party Opinion provider ‘Cicero Shades of Green’.

Programme debt

Saipem, who provide services to the oil and gas drilling industry, were also out with €500m in Senior Notes due 2028 (Ba2/BB+). Proceeds will fund general corporate purposes, and priced at 3.125%, inside IPTs of 3.5%a. Elsewhere auto manufacturer Renault priced an MTN offering of €600m Senior Notes due 2028 at 2.5%, a little inside IPTs of 2.75%a.

Saipem’s 2028s have traded well post issuance, and were quoted at 101.33 on Friday afternoon. Renault’s 2028s were a touch down from par, quoted at 99.85.

A Real German Beauty?

And finally, German perfume and cosmetics retailer Douglas set about adding the finishing touches to its new capital makeup. Initially structured with €1.08bn TLBs, €1bn SSNs and a €300m PIK, the Term Loans were twice downsized, to €750m and again to €600m. The SSNs received the first boost, up to €1.33bn, but were later trimmed to €1.305bn, with the PIKs juiced up to €475m.

Pricing widened on the revisions, with the TLB at E+550bps (OID unchanged at 99, coupon increased from E+500bps), and the SSNs to 6.0% (from 5.5%). The PIKs held steady at 9%.

Leveraged Loans Primary - Pharma free-for-all

A hot week in primary as the market begins to wade out of the repricing bog. Four deals in the market back shareholder pay-outs and three contain a ESG ratchet. Refinancings, however, make up half of the loans discussed this week (nine out of 18), as buysiders cop to continued undersupply pressure driving nearly every deal – despite complaints over quality – to oversubscription and tighter margins.

“It’s still a bit surprising to me,” said one buysider. “So much mispricing of loans down when we’re not really out of the pandemic yet in Europe.”

“There is a lot of pressure to slip into a high margin name at the moment, to trim down on the low 300s names,” admitted another.

Just three repricings make this week’s Wrap: RV-manufacturer Thor Industries hammered a divine 100 bps its €503m 2026 TLB and its $942m 2026 TLB (Ba3/BB) to E+300 bps and L+300 bps respectively. French flooring and interior finish company Gerflor, meanwhile, bestows a new repricing on the market: a €850m 2027 TLB, bolstered by a new €50m add-on to fund potential acquisitions. It is guided at E+375 bps, original at E+425 bps. Finally, software company Veritas repriced a €549m 2025 tranche at E+475 bps (B2/B) and a $1.322bn 2025 tranche at L+500 bps. Previous 2025 TLBs carried margins of L/E+550.

Shareholder recap feast

In this issuer-friendly environment, we see €1.09bn-equivalent in shareholder payouts in market this week, with another €2.775bn of TLs partially backing a recap.

German building and insulation material manufacturer Xella is dishing out €510m to shareholder Lone Star with its €1.945bn 2027 TLB (B3/B) following on from dividends secured in 2018 and 2019. This follows a €110m recap from another portfolio company Edilians, formerly Imerys Roofing, in February 2020. A €250m senior secured RCF and potentially €200m in PIK notes accompany.

UK life sciences group LGC, meanwhile, launched a £496m-equivalent dual-currency dividend recap maturing 2027 (B/B3/B). Cinven and Astorg bought the business from KKR with a £1.082bn-equivalent buyout loan in January 2020. KKR had itself acquired the business from Bridgepoint in 2015 for around £650m.

Elsewhere, it’s auto glass refinance, auto glass recap: Belron is out with a €1.575bn-equivalent 2028 TLB refinancing and divi recap, with a tidy +/-7.5 bps ESG ratchet included. A €840m tranche and €735m-equivalent dollar tranche both guide at E/L+250 bps.

Belron is one of three loans in the market this week offering up ESG ratchets to green-hungry CLO shops. Another, Swedish software firm IFS, finalised a €1.2bn-equivalent TLB refinancing, shareholder pay-out and acquisition financing – this deal contains a +/-10 bps sustainability ratchet. A new $720m 2028 tranche priced at L+375 bps and a €520m 2028 tranche at E+350 bps. A €67m acquisition facility comes in at E+350 bps also. It, along with the euro tranche, have a standard two 25 bps step-downs at 0.5x deleveraging. The dollar loan has just one step down at the same metrics.

Pharma frenzy

So-inclined buysiders have a smorgasbord of healthcare and pharma firms to load up with week. A total of €5.86bn-equivalent of healthcare TLs are in the market – YTD, the sector makes up 16% of euro leveraged TLs issued. This is equal to Consumer Discretionary (Verisure’s €2.8bn TLB, for example), but lower than Materials at 25% (Ahlsell’s €1.8bn TLB and Xella’s €1.954bn, for example).

Netherlands-based Organon brings the most robust offering. An eye-catching $3bn-equivalent 2028 TLB is split between a $2bn tranche and a $1bn-equivalent euro tranche, both guided at E/L+300 bps, the funds back the standalone business. Organon specialises in medicines including reproductive health and contraception.

In France, private hospital operators are lining up for leveraged loans. Ramsay Generale de Santé’s €1.35bn refinancing (Ba3) guides slimly at just E+250 bps on a five-year tranche and E+275 bps on a six-year tranche; the tranches are split equally. Following competitor Elsan earlier this year, it is the third deal this week with an ESG ratchet, also at +/-10 bps. Almaviva Santé was also in the market this week with a €290m 2028 TLB, guiding at E+350-735 bps. This is a market in a race to consolidate, with these three operators (plus a fourth, Vivalta Santé) already controlling 60% of the market and hungry for more.

French pharmaceuticals firm Ethypharm, meanwhile, is notable for being Europe’s first leveraged loan to shun LIBOR for SONIA. The £245m TLB is guided at S+450-475 bps, while a €270m TLB is guided at E+350 bps. The transaction will close on 1st April – the date after which all new sterling loans will be required to use SONIA. The current GBP overnight rate for LIBOR is 0.04075%, while for SONIA it is 0.0481%.

Away from France, Recipharm, a Swedish contract-based firm that manufacturers outsourced drugs, is out with a €1.115bn TLB to back its purchase by EQT. Guiding at the tight end of E+350-375 bps, it accompanies a £228m pre-placed second lien and a multi-currency $353m-equivalent RCF. Sponsor EQT acquired Recipharm in December 2020 at a $2.8bn valuation – a price that one analyst told Bloomberg looks low.

Finally, price chatter on UK-based Advanz Pharma swung wide, now E+500 bps on its €305m 2028 TLB (B3/B-). In another sign of investor reticence, call protection was doubled to 12 months. Funds back its acquisition by Nordic Capital, which releverages the name. Formerly Concordia, Advanz Pharma was delisted from Nasdaq in 2018 as part of a debt restructuring.

In other new deals:

  • French retailer Casino, which focuses on consumables on a majority (68%) brick and mortar basis, offers up an €800m 2025 TLB refinancing, guiding at E+450-475 bps. Buysiders pointed out its messy corporate structure and tough pricing pressure between European supermarkets as detractors from this deal, which is marked at an EBITDA of €395m and net leverage of 5.0x, according to buyside sources. Casino owner Group Rallye entered into French Sauvegarde processes in 2019, and is relying on Casino leverage dropping to below 3.5x to meet a large principal payment via upstreamed dividends in 2023. 

In other updates:

  • German make-up retailer Douglas is contouring out a €2.55bn refinancing. It shaved €150m off a TLB offering down to €600m (B3/B/B-) and widened pricing guidance to E+550 bps as it struggles to paint a pretty picture for loan investors. The deal originally launched at €1.080bn and E+500 bps, reducing already on 24th March to €750m. 

  • Avast priced its €300m and $480m senior secured 2028 TLB refinancings tight at L/E+200 bps, 25 bps Babilou’s €95m fungible add-on to its €487m 2027 TLB will back its acquisition of Netherlands’ second-largest nursery operator, Blos. It is offered at E+500 bps.

  • MBCC, formerly Skyscraper, priced its dual-currency 2027 refi (B2/B/BB-) at L+350 bps on the $570m tranche and E+350 bps on the €1.1bn tranche, the latter shaving 100 bps off the facility is replaces. That facility, a €3.17bn TLB signed in late 2019, support its acquisition by Lone Star.

High Yield - Secondary

Secondary traded up slightly on the week, marking an average gain of +0.12 pts (48% +0.55 pts | 48% -0.33 pts). IT (+0.41 pts) tracked the greatest returns, along with Industrials (+0.33 pts) and Healthcare (+0.23 pts). On the reverse, Energy (-0.15 pts) and Utilities (-0.08 pts) saw some losses.

Following Monday’s roll into series 35 the iTraxx Crossover was quoted at 268bps, settling slightly since the beginning of the week (272). The indices biannual redetermination saw a 30 pt jump versus Friday, largely due to upgrades out of the index, which were replaced by illiquid bonds.

In fund flows, HY credit funds saw big flows into EM this week. Global HY saw inflows of +$1,189m, while US HY was +$666m, and Euro HY +$228m.

Playing Chicken with the King

Once penned as a sure restructuring candidate, Boparan pulled off a relative coup with its par refinancing in Nov-2020. The group announced mixed Q2 results on Wednesday, reporting revenues down -3.3% YoY, (LfLs were up +2.7% after adjusting for the disposal of Fox’s biscuits and excluding ongoing sales in Uttoxeter). 

The Fox’s disposal helped the group fund a capital structure reshuffle in Nov-2020, cutting debt by around £250m. However the marketed net leverage of 3.3x has since jumped back to 4.8x for Q2. Like for like, the core-focus poultry section grew +6.9% YoY thanks in large part to volume gains, although EBITDA dropped to just £3.8m, with COVID, bird feed inflation and continued closure to Chinese exports driving margins to just 0.8%. Management described these as “temporary headwinds” in the call, with margins expected to improve in Q3. 

As part of the Poultry Plus pivot, further disposals of non-core segments, namely the Pastry business remain on the horizon - “we’ll sell when we believe the value is right… it’s not right at the moment”.

The new 2025s dropped almost four points on the results, although the bonds have since recovered to 98.4 by Friday afternoon.

Leveraged Loans Secondary - Europe slides, Holland & Barrett escapes CCC

European secondary markets trended down this week. Only Real Estate enjoyed the smallest of bumps (+0.012). The dip in all other industries was led by Consumer Discretionary (-0.18 pts), Communication Services (-0.17 pts) and Financials (-0.16 pts).

The opposite story in the US: there, only Energy (-0.17 pts) – for the third week running – and Consumer Staples (-0.03 pts) slid. Others were led by gains again in Communication Services (+0.24 pts) and Consumer Discretionary (+0.23 pts).

This week, travel catering firm Areas led tumblers with its €1.05bn E+475 bps TLB, falling -1.82 pts to a still healthy 90.89 pts, as news of a European third wave hit. The UK’s Binding Site, which supplies specialist diagnostic products, dropped -1.6 pts to 97.8 pts on its €319.5m E+350 bps 2025 TLB.

At the other end of the spectrum, two PlusServer TLs (a €190m E+375 bps TLB and a €70m E+375 bps TLB) continued their stuttered climb upwards, this week each +2.75 pts to 68.0 pts.

UK health foods and wellness retailer Holland & Barrett’s£450m L+450 bps 2024 TLB and €418.9m E+425 bps 2024 TLB saw +1.46 pts and +1.25 pts bumps to 96.5 pts and 97.0 pts respectively. This is on the back of corporate and facility upgrades from Moody’s (B3) and S&P (B-): a much more comfortable spot for CLOs. The ratings agencies cite a 16% increase in EBITDA to £170m as of September 2020 and a drop in adjusted leverage from 7.9x in FY2019 to 6.7x. Holland & Barrett qualifies as an essential retailer in the UK, meaning it has been able to remain open for most of the pandemic. 

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