Aqua Aerobics, Cult Cinema and Public Displays of Acquisition
In the final lull before next week’s revival, we’ve tracked two new issues, both offering hearty yield on still more floating rate debt. Whether for regulatory reasons, shorter call schedules, or just a wider pool of demand (soaking up orders from both traditional Loan and CLO buyers), FRNs have lately been in favour with issuers, most recently seen with Oriflame, HSE24, and Italian’s Golden Goose, Cedacri and IDG.
High Yield - Primary
Sweden-based Transcom announced the first of two floating deals this week. The €300m of Senior Secured FRNs due 2026 were sent out with IPTs of E+550-575, 99 OID on Tuesday (B3/B-). Proceeds will refinance the existing secured and unsecured debt, alongside €15.3m drawn under the RCF. A further €20m will fund the purchase of TMS - a German CRM / BPO service provider - from Transcom TopCo, acquired in March 2019. TMS will now be included in the restricted group.
Transcom provides outsourced services, including billing / late payments, technical support, customer acquisition and back office functions. Sales are split into three verticals; Services & Utilities (31%), Telco & Cable (30%), and eCommerce & Tech (40%). As Moody’s note, contributions from higher margin acquisitions (notably Awesome in 2018) have improved profitability, driving EBITDA margins from 6% in 2017 to 10% in 2020.
The covenant package was straightforward, and includes EBITDA add backs capped at 25%, subject to a 24-month time limit, and a 0 floored RP CNI builder. Price talk was trimmed to E+525-500 (OID unchanged), and revised further on Friday to E+525 with an OID of 99-99.5, with a €15m upsize for additional cash on balance sheet. The deal priced at the tight end, offering E+525, 99.5 OID.
Barclay’s save-the-date in the leisure sector arrived on Tuesday, with the launch of a chunky refinance and general corporate purpose debut offering from David Lloyd. Owned by TDR Capital, the up-market health and fitness club announced £645m Senior Secured Notes due 2027, and €300m Senior Secured FRNs due 2026 (B3/B+). Alongside a £350m equity contribution (of which £250m will be HoldCo PIK Notes), £1,099m of proceeds will be used to repay existing debt, including £40m drawn under two RCFs. The £134m set aside for GCP will fund working capital requirements, capital expenditure and strategic acquisitions.
IPTs on the GBP Notes came at 5.75-6.00%, with the E+500 (99.5) on the EURs. Price talk shaved 25 bps off initial thoughts. Final terms emerged this morning, and the GBPs landed at 5.50%, and the EURs at E+475 bps for par.
On the legal front, portability is notionally set at marketed leverage (4.5x) although the deal is marketed on adjusted 2019 figures - and EBITDA add backs are uncapped, with no time limit. More importantly, asset sale proceeds may be used to fund restricted payments.
Positioned as a ‘lifestyle club’, the UK based group was able to minimize membership loss during Covid, down ~10% during the first lockdown, versus ~27% for ‘certain low-cost competitors’. As outlined in our Credit QuickTake, the sector has faced numerous challenges in recent years, with Fitness First, LA Fitness, Total Fitness, DW Sports and Virgin all restructuring and/or reducing rental payments via CVA and other UK insolvency processes. During the first lockdown, the company reduced operating cash outflow by 86% from £37.7m to £5.3m, primarily via furloughing staff and deferred rent savings. However these rent payments will soon come due, £35.1m in June-Dec 2021, and a further £45.2m in 2022.
On the Charge
And finally, US battery manufacturer Energizer announced calls for a potential Senior Notes offering, due to start on Monday - Bank of America is arranging. Other deals expected include the bond portions of Phillips carveout PDA, which is being acquired by Hillhouse Capital, and a refinancing from Paysafe.
On Tuesday, Mudrick Capital purchased 8.5m in freely tradable AMC Entertainmentshares for $230.5m at $27.12 / share. Proceeds were ticketed to fund theatre acquisition opportunities, and potential deleveraging. However, following a surge in price Mudrick promptly sold its stake, citing overvaluation, and so reaped gains provided by memestock retail investors - the stock closed at $32.04.
AMC are clearly no fools when it comes to their investor base, through its AMC Investor Connect programme, investors who signed up will receive an initial offer of a free large popcorn when attending a movie at AMC this summer, with more benefits to come.
On Thursday the group sold a further 11.6m shares through its ATM equity programme, raising $587.4m ($50.9 / share). The group’s $500m 10.5% SSNs due 2025 have rallied with force this year, now trading at 109, from around 70 at the start of January.
In more staid equity offerings, Spanish concession and construction group Obrascon Huarte Lain announced a €35m rights issue, as it moves forward with a restructuring plan agreed in January. In addition, a further four share capital increases are planned.
Elsewhere, in the ongoing Credit Suisse-Greensill-Sanjeev Gupta saga, commodity trader Trafigura warned the bank last year that CS’s supply chain finance funds contained a ‘suspicious invoice’ from Gupta’s empire.
Leveraged Loans - Primary
Buysiders have been increasingly put off by weaker credits over recent weeks, with some warning of an “indigestion risk with so many B3 names out there”. There are some sparks of light this week, with three B1 credits to choose from, but investors are still less than sanguine on the state of borrowers coming to market.
Epitomising this, this week came news from the only deal to be pulled this year. Sports media rights and marketing firm Infront found solace in The Carlyle Group after its original plans for a €300m 2026 TLB refinancing were booted off-field by investors. Buysiders confessed discomfort with some governance issues surrounding the company (see a preview here) – enough that not even a margin of E+525-550 bps and a 98.5 OID could entice them. Carlyle, which was previously only due to provide junior financing to the company, ultimately subbed in with €400m in debt financing.
In a breather from lacklustre credit quality, three shiny B1s popped up this week for buysiders to peruse. This comes after a notable dearth – only 34 of 2021’s 180 leveraged loans have scored a B1 rating so far.
First, UK forecourt operator Motor Fuel Group (MFG) closed a €1.98bn refinancing and recap (B1/B) to sponsor Clayton, Dubilier & Rice (CD&R). An existing £700m 2025 TLBpriced in line with guidance at S+475 bps plus a credit adjustment spread, while another existing €787m 2025 TLB came in at E+375 bps. Fresh blood comes via a €300m non-fungible TLB at E+375 bps and 99.75 OID, as well as a £65m add-on at S+Cas+475 bps that is fungible with the existing sterling TLB. See our preview here.
Buysiders warmed to this reasonably lockdown-resistant business, sidestepping concerns over a market shift away from fossil fuels and an “aggressive” sponsor to focus on the group’s position as UK forecourts forerunner and rising fuel margins, as well as praising a dedicated management team and a vigorous acquisition strategy.
Elsewhere, payment-processor Paysafe (B1/B) is cashing in a roughly leveraged-neutral dual currency $1.026bn TL package. Currently guiding tight at L/E+300-325 bps and a 99.5 OID on its euro and dollar tranches, the offering includes a 25 bps stepdown on both tranches at 3.7x net leverage based on 0.5x of deleveraging on both tranches.
Finally, love is in the air as buysiders swoon for PDA – Philip’s domestics appliance division. A seven-year €850m TLB (B1/B) is on the market, backing Chinese Hillhouse Capital’s €3.7bn public displays of acquisition. The deal guides at E+350 bps and 99.5 OID, with buysiders pleased with Hillhouse’s reputation, but questioning whether 350 bps accounts for the risks associated with the carve out and its expansion in China.
Solera: Vroom to grow in mega-merger
Buysiders will be exhaust-ed with cars this week. First, final pricing on US automotive software firm Solera’s seven-year $5.235bn TLB (B2/B-) came in tight as investors basked in some Covid resistance.
The Texas-based firm, which provides automotive management software, also sped its adjusted leverage up into the double digits (10x) with this deal – however investors felt it could afford this debt pile up: “I can look past leverage for strong fundamentals here,” said one buysider. EBITDA margins, for instance, bolstered by a cost-restructuring over the last 18 months, are now at a S&P-forecasted mid-40%.
Funds back Solera’s merger with two Vista Equity Partners-owned companies, Omnitraces and DealerSocket, in a deal that should rev revenues up by $700m to $2.2bn annually. A $3.38bn TLB came in at L+400 bps, with a 0.5% floor at 99.5 OID from L+400-425 bps and 99 OID at launch. A €1.2bn TLB, meanwhile, priced at E+400 bps and 99.5 OID, while a £300m TLB finalised at S+525 bps.
In other news:
Dedalus, a healthcare software company, is out with a €1.005bn deal to refinance existing debt and fund recent acquisitions. It is divided up between a €920m 2027 TLB and €85m add on; pricing pending. This comes that week after the Abu Dhabi Investment Authority’s (ADIA) private equity arm announced it had scooped up a significant minority stake in the company from PE firm Ardian. Existing corporate ratings are B3/B/B.
Another UDG Healthcare will hit the market with a £2.06bn-equivalent TL to support its acquisition by Clayton, Dubilier & Rice (CD&R) in July. The loan is split between£510m of euros and£1.55bn of dollars. The Irish company provides healthcare advisory, communications, commercial, clinical and packaging services, with operations in the US and Europe and a smattering in Asia, Africa and South America.
Nordics and Benelux website hosting and software firm one.com is out with a €375m recap and refinancing. The company provides website services to 1.4 million small businesses.
State-owned telecommunications firm Telekom Slovenije signed a seven-year €130m loan agreement with Banka Intesa Sanpaolo, Nova Ljubljanska Banka, SKB and UniCredit Banka Slovenija. The loan is split up into three tranches: two €50m and one €30m.
High Yield - Secondary
We again tracked broad but marginal gains of +0.18 pts on the week in Secondary (74% +0.31 pts | 23% -0.19 pts). All industries were in the black, with Industrials and Consumer Discretionary (+0.24 pts) taking the lead, closely followed by Energy (+0.23 pts). At the lower end, Healthcare, Financials and Consumer Staples all tracked gains of +0.10 pts.
The iTraxx European Crossover is unchanged, quoted today at 247 bps.
Leveraged Loans - Secondary
The secondary market stayed the course – again – this week. All average sector-wide movements were well under +/-1 pts, with the largest individual downward slip coming in at just -0.58 pts to 68.7 pts for PlusServer’s€190m E+375 bps 2024 TLB and €70m E+375 bps 2024 add-on. Vue keeps its (somewhat) blockbuster spot, continuing to creep up the charts, this week +2.6 pts to 96.1 pts on its three TLBs.
Secondary buysiders remain glum when it comes to this rising tide of loan pricing as market confidence continues to bolster as Europe (hopefully) rolls out of restrictions. This has borne out in ratings: as of April, upgrades in the leveraged loans space were outstripping downgrades, according to Fitch.