LevFin Wrap - Biden Your Time For A Democratic Win

Our take on this week in the European leveraged finance market

With an election for a backdrop, few names were brave enough - or eligible - to enter the market this week. As new lockdowns are implemented across Europe, central banks have promised yet more support, while equity markets have seen strong growth.

Masmovil, the Spanish telecom business, managed such a move - voting for a small €80m tap of its €720m SSNs due 2027. The deal priced the same-day at 101.38, with proceeds for general corporate purposes. With Spain facing increasing public pressure to lockdown, this could well be the last chance for the firm to raise additional capital in the short run.

On Thursday, German styrenics supplier INEOS Styrolution announced an update on its initial $4bn acquisition of BP Aromatics & Acetyls - as part of its Q3 report. The transaction is now cleared by relevant competition authorities, with a two year $3.5bn bridge financing arrangement - signed in August - in place. The group hopes to take out the bridge in January, with a multi-currency bond and loan.

Other candidates we expect campaigning for issuance in the nearer term include the Asda-Issa Brothers / TDR buyout, a Boparan refinancing of its 2021s, as well as potential for Almaviva, DEPObank, and William Hill offerings. For those names more exposed to pandemic risk (PureGym, Pasticceria Bindi, Golden Goose) these are bets that may remain on the sidelines.

With Primary on pause, we can explore this week's bullish trading in Secondary. 

European HY names gained considerable strength, trading up +1.01 pts on average (86% +1.27 pts| 12% -0.64 pts). Interestingly - US-Canadian companies trading in Europe saw an average increase of +1.63 pts, more than twice the gains seen by the rest of the market. Grouping by issuance rating, both single B and double BB names made an average gain of ~+1 pt, with triple CCC+ outperforming at +1.58 pts.

Industry splits show decisive swings for Communication Services (+1.34 pts), IT (+1.33 pts), and Healthcare (+1.25 pts). Utilities (+0.59 pts), Financials (+0.52 pts), and Energy (+0.26 pts) marking relatively lower buildouts.

Across broader market indicators, European HY bond funds saw -€578m of further outflows this week, equating to -1.45% of total AUM, or -9.90% YTD (Credit Suisse).

Retail notes remain Resilient

Third quarter results have continued to roll in. UK retailer M&S announced an £87m pre-tax loss on Wednesday - it’s first loss in the firm's history. YoY sales slumped nearly -16%, with EBITDA tumbling -37% in what the group terms ‘robust performance in unprecedented times’. Liquidity remains strong however, with £286m in cash and an undrawn £1.1bn RCF - the existing Senior Notes were unphased by the results, trading flat on the week. It’s also worth noting in light of Sunak’s extended furlough announcement, M&S reports it recognised almost £100m in government support related to furlough schemes in the geographies where it operates - it furloughed up to c.29,000 employees in May.

Spanish retailing camarada El Corte Inglés announced results on Friday, showing a Q2 revenues down -30% YoY, with EBITDA down -76%. Retail and Insurance division sales were down around -13%, with the greatest loss arising from Travel, which saw a -93% crash. The second quarter presentation slides are however keen to reinforce a return to positive EBITDA in the second quarter. Both the 3.00% and 3.625% Senior Notes due 2024 were trading above par on Thursday, up +1 pt and +2 pts respectively.

Locksley Lockdown

In the wake of a new month-long lockdown in the UK, Monday saw Center Parcs resorts announce the closure of its remaining 4 UK holiday villages, in addition to the previous closure of Sherwood Forest. Revenue lost in the previous lockdown was not covered by insurance, and the group continues to have material uncertainty around Covid-19 on its ability to continue as a going concern. As of September, owner Brookfield had injected £69m of equity alongside an intercompany advance of £70m in July. An update will be given in the groups half year results, expected in mid-November.  The Senior Secured Notes due 2026 are trading 97/98.5, for 6.8% YTM.

AML Accelerates on New Gearing

In other news, luxury sports car brand Aston Martin has seen positive movement on its new Caa1/CCC 10.5% Senior Secured Notes, which priced at par last week, closed on Thursday at around 102.