LevFin Wrap

Picard Fails to Reach Final Frontier

By Huw Simpson (huw@9fin.com) and Laura Thompson (laura@9fin.com)

High Yield Primary

Tracking eight new deals (including four from Germany) a High Yield supply wave is truly in full flood. After VerisureFoncia and Pfleiderer, two further issuers opted for dividend recaps this week - with varying success - bringing suggestions of a toppy market.

Left out in the cold

But on Friday morning, Picard, the French frozen food retailer announced it was pulling a €1,710m refinance and dividend recap deal due to ‘market conditions’. The €250m SSNswere to be offered via Lion/Polaris Lux 4 S.A. (one for Star Trek fans), with SS FRN issuer Picard Group S.A.S., offering €1,200m (B3/B/B+). A further €260m of SUNs made up the package, offered at Picard Bondco (Caa1/CCC+/CCC+).

Pricing was reportedly the issue at stake. The group stated that it had “no immediate maturities and is therefore in a position to be opportunistic and flexible when accessing the capital markets”. In hindsight, the transaction has several interesting elements which contributed to its failure. 

The existing FRNs due 2023 only pay E+300 bps, and whispers of E+400 bps on the new FRNs suggested a mismatch of expectations between the group and investors. In addition, a B3 rating from Moody’s would perhaps limit CLO demand for the new floating paper. Marketed on Dec-2020 numbers, and with a boost from Covid trading, EBITDA is expected to decline over the next 12-18 months. Pro forma for the transaction, Moody’splaced leverage at around 6.7x (up from 6.1x pre-transaction), expected to increase further to around 7.4x on EBITDA declines. On the Legals side, scope for additional RP (0.6x EBITDA day one) - including a new €75m starter amount - were compounded by lively EBITDA add backs. Adding to this, portability was set well above opening leverage at 6.7x, versus the 6.1x marketed figure.

You can read our Mar-2020 deal prediction on this credit here.

The other dividend recap of the week came via HSE24, the German TV home shopping retailer, who on Tuesday announced a debut HY offering of €630m in fixed and floatingSenior Secured Notes due 2026 (B). The new Notes will refinance a €393m unitranche, and pay a €243m dividend to owner Providence Equity Partners. 

The sponsor had previously made two exit attempts; an aborted sale process, and a failed IPO in 2019 which targeted a market value of at least €1.5bn. Operating mainly in the DACH regions and Russia, the group sells fashion, beauty and jewellery products, benefitting from a high share of variable costs versus traditional brick and mortar stores. A straightforward covenant package (albeit with day-one portability) the tranches finalized at €380m 5.625% SSNs, and €250m E+575 SS FRNs.

Das Sandal

We’ve also tracked four new deals from German Issuers, ranging across fashion and footwear, pharmaceuticals and real estate.

Announced last week, German footwear group Birkenstock officially stepped out with the bond leg of its LBO on Monday. Alongside €430m in Senior Notes due 2029(Caa1/CCC+/B-), a $892m and €325m TLB (B1/B/BB-) make up the financing package. As you might expect, the sponsored deal came with favourable terms for new owner L Catterton. 

Birkenstock featured a concept borrowed from loan land, the ‘Available Amount’. This converts Permitted Debt baskets, among other things, to either Permitted Investments (PI), Restricted Payments (RP) or Subordinated Debt Prepayments (SDP) capacity thereby allowing Birkenstock unlimited PI, RP and SDP to be made without being subject to a maximum leverage if 100% funded from the Available Amount. Full details can be found in our Legals QuickTake.

We also produced our first Financials QuickTake, for Birkenstock highlighting a product mix and e-commerce channels that allowed for (slight) top line and gross profit growth through Covid. While gross margins are likely to decrease as costs normalize, capex requirements for the business are minimal, and we assume the company to be cash flow positive, with extra liquidity available under the €200m ABL. We welcome any feedback, so we can evaluate the demand for this kind of analysis, and improve it from your suggestions.

Although some investors queried the product diversification (the five ‘core classics’ contributed nearly 75% of revenues in FY 2020), the customer base is varied across age groups, and a sizable equity cheque means a net leverage of 6.9x is well covered by net capitalization of 17.8x. Pricing is currently guided in the low 6s.

Next up, mainstream women’s fashion retailer CBR Fashion priced €470m in Senior Secured Notes due 2026 at 5.5%, slightly inside IPTs of in the high 5s (B2/B). The group operates mainly in Germany, where 76% of 2020 revenues were generated, although it retains a presence in 19 countries across Europe. Legals are substantially similar to the existing 2022s, with portability set at opening leverage - sponsor Alteri acquired the business from EQT in 2018, and has since distributed around €195m in dividends and shareholder loans.

Pharmaceutical company Grünenthal placed a more staid offering, printing €400m SSNs due 2026 and €250m SSNs due 2028 (B1/B+/BB). Initially marketed as a single 5.5-year €500m tranche, this was trimmed with a new longer-dated portion added, upsizing the overall deal by €150m. The transaction will be leverage neutral, as the additional proceeds pay down existing bank loans. Pricing finalised at 3.625% and 4.125% respectively, a notch inside talk of 3.75-4% and 4.25-4.5%. Our Credit and LegalQuickTakes are available on 9fin.

Finally, Adler Group, the commercial and residential property business, found space for a €500m offering under its new Euro MTN programme (BB+). The 2.25% Notes are due Apr-2027, and will create €33m of ‘financial synergies’ by way of replacing the €450m 9.625% SSNs left at Consus Real Estate (B-/B). Adler Group was formed in 2020 through the combination of Adler Real EstateAdo Properties and Consus.

Other deals this week

Elsewhere, Swiss direct beauty firm Oriflame was in market offering $550m SSNs and €250m SS FRNs due 2026 (B1/B+/BB-). Oriflame has nearly 3m ‘members’ who market and distribute their products. These members fall into two categories, those who purchase goods either for their own use - or to sell on at a mark-up (~75% of members), and those who receive commission for sales (the remaining 25%). The dollars finalised at 5.125%, with the smaller euro tranche at E+425, inside IPTs of Mid 5s and E+450-475 respectively.

Greek industrial conglomerate Mytilineos priced a €500m inaugural green bond for 2.25% (BB-/BB). The new five year Senior Notes offer 25 bps less than the existing Seniors, which mature in 2024. Proceeds are ticketed to repay €300m in bank loans, with the remainder held as cash on balance sheet for general corporate purposes - an amount equal to the offering will be used to fund eligible green projects. 

Leverage Loans Primary

Five new loans launched this week – two acquisition loans, two LBO and refreshingly just one lone refinancing. This is indicative of a continued trend away from the refinancing/repricing deluge of Q1: margins on B and B+ credits are trending up in April, perhaps dissuading those who would follow in the footsteps of opportunistic Q1 issuers. Out of 13 issuers currently in the market, roughly half (six) are backing acquisitions.

“Things are so much busier than last month,” one primary buysider said this week. “There are less deals in the market, but we’re getting some new names and we’re getting a lot of buyout financings, so all in all, things are a lot more hectic.”

Despite overall upwards pressure on margins, some issuers still managed to wind down proposed margins. Logoplaste reverse-flexed pricing on the euro tranche of its €770m-equivalent TLB. The firms’ impressive growth under previous owners Carlyle Group overcame intense raw material shortages and long-term ESG pressures to drive pricing down to a tidy E+375 bps on its €440m 2028 tranche, down from initial guidance of E+400-425 bps. The remaining $300m dollar tranche firmed at a more modest L+425 bps. Find a preview here.

Jazz Pharmaceuticals also revised guidance on its dual-currency $3.1bn and €625m TLB ahead of Thursday commitments. The dollar tranche was offered at the tight end of L+350-375 bps guidance, with OID on both tranches set at 99.5. Funds back its acquisition of GW Pharmaceuticals. 

Chicken, run

Two firms this week have come to the lev loan market to fund their own acquisitions.

In bad news for chickens, Duravant has launched a $570m-equivalent 2028 facility(B2/B-) to support its acquisition of the unaptly named Foodmate, which manufacturers “poultry processing” equipment. The TLB itself is guiding at a not-so-paltry E+400-425 bps at an OID of 99.5, while a $175m second lien loan is offered at L+725 bps.

Illinois-headquartered Duravant is an automation company serving the food processing, packaging and materials handling (i.e. conveyor belts). Foodmate, which focuses on such delights of deboning equipment (“Innovation cannot be stopped and neither can we,” cackles Foodmate’s website), is based in the Netherlands, with businesses in North and South America.

The deal continues an acquisition streak for Duravant, following its purchase of Votech – a manufacturer of bag filling machines and palletising technology – and Cloud Packaging Solutions, a manufacturer of flexible packaging equipment.

Joining Duravant, security firm Allied Universal is out with a £950m and €715.5m TLB (B2/B/BB-) to fund the acquisition of UK rival G4S. Both are offered at E/L+375-400 bps. The purchase will create the world’s largest private security firm, doubling Allied’s annual revenue to $18bn, per Fitch, expanding the firm into 86 additional countries. G4S, which also employs prison security staff and risk consultants, had repeatedly thwarted advances from Canada’s GardaWorld before assuaging to Allied’s £3.8bn offer.

Hate the syn, lab the synner

German lab operator Synlab is out with a €735m 2026 TLB as part of a wider €1.235bn financing refinancing in preparation for its Frankfurt IPO. With an IPO of up to €1.48bn around the corner, the TL is guiding at E+250 bps, reducing to as low as E+125 bps depending on leverage. A €500m-equivalent multi-currency E+250 bps RCF comes along as well.

Synlab offers diagnosis to both human and animal ailments. Currently Cinven-owned, it rose to a €6bn EV on the back of the pandemic, making more than a fifth of its 2020 sales from Covid – a boon Fitch expects it can spread out until 2023. Cinven bought the firm from GC Partners in 2015 for €1.7bn, later merging it with French lab operator Labco.

LBOs: Longing for Lonza, Unit4

There are two new LBOs for buysiders to get their teeth into this week. Lonza Specialty Ingredients is out with its long-awaited financing bonanza. Buyers have, in past months, pointed to this deal as a bright spot when deep in the repricing swamp. Its $1.13bn and a €725m TLB (B3/B) will back Bain Capital and Cinven's acquisition of the Swiss contract drug maker’s ingredients unit. The $4.7bn purchase was announced on 8 February, following a hotly contested auction process that left groups like Advent and Carlyle eating dust.

Unit4 also launched a €675m TL (B3/B-) backing its purchase by TA Associates from Advent International in a deal valued at around $2bn. The business makes software for professionals and students, including enterprise resource planning (ERS) such as project management and HR platforms. Its seven-year loan is guided at E+400-425 bps and 99.5 OID. Advent took the business private in 2014 in a deal valuing the firm at nearly €1.2bn.

In other news:

  • Buysiders continue to debate Birkenstock’s$829m L+375-400bps TLB and €325m E+376-400 bps TLB ahead of commitments. The company already has a healthy revenue split between the Americas and Europe (49%/41% for 2020), but is pushing its presence in Asia. One buysider expressed concern over the capex suck that this expansion could become. “There is some inherent risk in the fashion industry,” another buysider mused. “If they’re so dependent on one product – who says people will want to be wearing that product three years from now?”

  • German market research group GfK racked up doc alterations ahead of closing. The firm cut margin ratchets on its €650m E+400-425 bps TLB from three to a more standard two, plus lower step-down thresholds. Leverage tests for unlimited restricted payments dropped from 3.0x to 2.0x, while the starting threshold for excess cash-flow sweeps was reduced to 2.0x from 3.25x. Preview here.

  • Spanish B2B wealth manager Allfunds inked a €550m E/L/S+150 bps 2025 RCF ahead of an Amsterdam listing. The loan, which will be used for general corporate purposes and refinancing, can be drawn in in euros, dollars or sterling. It comes with two one-year extension options and a ratings-based ratchet.

This week’s Loan Credit QuickTakes:

This week’s Loan Legal QuickTakes:

This week’s loan previews:

High Yield Secondary - A Post Covid Paradigm

Performance of new deals issued prior to the emergence of Covid-19 show a marked disparity against those issued after Verisure reopened High-Yield in mid-April last year. While Q1 2020 instruments have traded down an average of -1.38 pts since issuance, new deals from Q2 2020 onward are up +3.34 pts, underlining the positive support we’ve seen for issuers. The compression in pricing variance from Q2 2020 to Q2 2021 is partly a function of time in market, but also points toward the - well documented - ‘pricing to perfection’ trend. As new issuers print at increasingly tight coupons, investor upside is being crimped. 

In European domiciled HY credit fund flows, it was a mixed bag across funds, with Global HY -$481m, US HY +$490m, and Euro HY +$4m. Meanwhile, The iTraxx Crossover was seen today at 251 bps, a touch wider than 245 bps as of last Friday.

Loans Secondary - Waiting for the Drop

“Things might be looking better for the primary guys, but not so much here,” bemoaned one secondary buysider this week. “The rampant mispricing just hasn’t gone away. If anything, it’s getting worse.” The frustration bears out in numbers: only BB-rated Industrials and Healthcare companies have on average traded down versus their 1 January pricing.