LevFin Wrap

No Time to Delay, Reekeep comes clean

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

High yield continues its rip, printing more than €3bn in issuance this week alone across seven new issuers, bringing the total issuance in January to more than €10.3bn. Across the pond, more $10bn was printed, with another $2.3bn still to price - January volumes have now exceeded $40bn, with Tuesday reported as US HYs second busiest day ever.

ReKeep Compensates For ESG Concerns

First out of the gate, facility management firm Rekeep announced €350m in Senior Secured Notes due 2026 (B2/B) - the third Italian offering in the last fortnight - and first since the development of home-grown constitutional issues. 

The effects of a dour political outlook, and largely domestic target market are perhaps eased by a temporary increase in demand for sterilization and facility management services during the pandemic.

A ‘complicated’ credit story, ESG concerns have dogged Rekeep, with anti competitive and antitrust concerns resulting in a series of actual and pending fines; €80m in 2019, €14.7m in 2016, and a €73m claim scheduled for later this year. Adding to this, three employees are currently undergoing investigation for alleged bribery in Naples, and the legal entity Rekeep SpA is subject to a six month ban on public tender offers. Litigation provisions (including tax) currently stand at €106m.

Pricing was first offered at 8%, which trimmed to talk in the 7.75% area before settling at 7.25%, proving even riskier credits are viable in the current market - provided investors are appropriately compensated. The deal offers a sizable interest saving over the existing 9% 2022s, which are being refinanced in the transaction. 

Green Light for Deleveraged Buyout

On Wednesday, roadside assistance and insurance firm AA priced £280m 6.5% Senior Secured Notes due 2026 (B+), as part of a rare sponsor buyout which will reduce initial leverage at the group to 6.8x. Tightening from IPTs of 6.75-7% and price talk in the 6.75% area, final terms cut the margin again, to 6.5%.

The offering will be used in concert with a £261m equity contribution to redeem the existing €570m Class B2 Notes. Total contributions from the Sponsors come to just shy of £600m, after TowerBrook and Warburg Pincus acquired the group at 35p per share (purchase price of £219m) with a £261m deleveraging contribution, and a further £100m to be deployed for the future refinancing of £372m Class A5 Notes due Jan-2022.

On the Legals front, increases have been made to the RP and PI capacity, and for the Class B Notes, there’s very limited ability to enforce without other creditor consent while Class A Notes (of which there are ~€2bn) remain outstanding. We’ve provided a handy primer as part of our memo on the offering, where you can plumb the various implications for interest payments, defaults, and enforcement.

Drive By - No Time to Delay

The first of three opportunistic taps, British film and television group Pinewood Studiosannounced on Monday morning the offering of £150m in additional notes (BB/BBB). The intraday offering upsized £50m and priced at 102.25 - proceeds from which will fund expansion projects and general corporate purposes. A trading update suggested performance for the two months to 30-Nov was largely consistent with Q3 2020. The Studio is famous - among various productions - for the latest James Bond instalment, which today was delayed again, this time to October.

A second Italian firm, Webuild, was also in market this week, offering a €150m tap of its €550m 5.875% Senior Notes due 2025 (BB-/BB). Hit hard by Covid-19, the December Notes were forced to offer lofty yields to ensure a successful completion, after a muted take-up on January’s exchange offer. IPTs in the 101.5 area tightened to final pricing at 102, which included a €50m upsize, proceeds will refinance existing bank and project debt.

Lastly, the ever acquisitive United Group also tapped and upsized, using proceeds from the additional €150m 4% Senior Secured Notes due 2027 (at 99.375) to term out amounts drawn under its RCF for the purchase of Nova Broadcasting Group. Bulgaria’s largest multi platform media company, Nova was purchased from Advanced media group for ~€289m in December.

Since its acquisition by BC Partners in March 2019 the Telco has been on an extended M&A spree - scooping up Croatian and Bulgarian competitors Tele2 and Vivacom, and most recently Nova. Pro forma run-rated revenues at 30 Sept are now almost at €1,800m.

Security Shuffle Cuts Cushion

Late in the week, final terms emerged across all tranches of the INEOS Quattro deal, as the bonds tightened around 75 bps on IPTs:

While the quantum of debt remains unchanged, INEOS shuffled €500m into security (€200m SSNs, €300m TLB), removing the same amount from the SUN offering. The reduced cushion for secured debt holders led to notch downgrades from Moody’s and S&P to Ba3/BB from Ba2/BB+, with Fitch yet to make any adjustments.

Healthy demand also helped bankers drop a more expensive bankers TLA tranche, passing it over to the swelling €3.15bn (equiv.) institutional TLB. Final pricing landed at L/E+ 275 bps, well inside initial guidance of 325-350 bps. 

Elsewhere, French automotive supplier Faurecia announced on Thursday the pricing of a general corporate purpose €190m private placement of its 2.375% Senior Notes due 2027, at 100.75. The little known Health and beauty products group LR Health also snuck in towards the end of the week, offering €125m in Senior Secured FRNs, with tempting IPTs of 700-750 bps. Rated BB- by ‘Scope’ rating agency, Pareto Securities and SEB are acting as bookrunners.

Two save-the-date announcements were posted on Friday lunchtime, for a European Healthcare debut bond (investor call 10am on 25 Jan), and a software company (investor call 1pm on 25 Jan). We expect these to be BioGroup LCD, who is set to announce up to €850m SSNs and €250m SUNs, and TeamSystem, whose Sponsor Hellman & Friedman is transferring the group from fund VII to IX. H&F pulled the same trick last week with Verisure, collecting a jumbo €1.6bn dividend.

Secondary

In Secondary, markets moved up on the week, registering a +0.19 pts average gain (57% +0.60 pts | 40% -0.38 pts). Real Estate (+0.50 pts) and Communication Services (+0.44 pts) led the charge, with Financials (+0.23 pts) and Industrials (+0.22 pts) also marking small gains. Energy (-0.02 pts) and Utilities (-0.07 pts) had the worst of it.

The iTraxx Europe Crossover was quoted at 256 bps on Friday, flat on 254 bps seen this time last week. Meanwhile, European domiciled HY credit funds saw further inflows, with Global High Yield reaching highs not seen in three years. Euro High Yield inflows were relatively less encouraging, seeing just $107m (US $419m, Global +$340m).

Leverage Loans

Flender goes green, Ineos Quattro tightens pricing

Keen investor demand saw new loans finalised this week locking down tighter pricing than at launch. Gearbox manufacturer Flender priced its €1.3bn package at par today after initial talk of a 99.50-99.75 OID at launch. The company also introduced a rare €80m-equivalent privately-placed Remimbi tranche that tempered its previously €1.045bn ESG-linked seven-year TLB down to €965m, likely to match RMB exposure in its revenue mix – the deal has a sole lead China arranger in Bank of China. 

Grab 9fin’s analysis of the Flender term sheet, whose funds support a Carlyle-sponsored LBO, in our Legal QuickTake by emailing loans@9fin.com (only available for clients with access to the underlying documentation).

Similarly, strong investor appetite firmed up margins on chemicals company Ineos Quattro’s five-year €1.5bn TLB and $2bn (Ba3 / BB / BB) refinancing package this Thursday (see 9fin’s Credit QuickTake here). Margins for the €3.15bn equivalent duo eventually came in at E/L+275 bps after initial talk of 325-350 bps was tightened to 300 bps, with an OID of 99.5. The financings kept their 0% dollar and 0% euro loan floors, as well as 101 soft-call protection.

Elsewhere, Moody’s tabled a B2 rating and S&P a B rating for chilled food producer Signature Foods’ pari-passu €341m TLB and €62m senior secured RCF due 2027. Both agencies cited high 6.0x leverage and geographical concentration – with only 10% of FY 2020 sales generated outside the Netherlands and Belgium – as risk factors, offset by expectations of operating cash flow growth from 2023. Pricing chatter puts the €341m TLB at E+400 bps and 99 OID, with TLB pricing finalising on 29th January. Pamplona Capital Management announced Signature Foods’ acquisition from IK Investment Partners in December.

Also earning a B2 badge was turnaround-specialist consultancy AlixPartners. The firm reportedly released price talk for its seven-year $1.775bn TLB and seven-year €344m TLB due 2028, whose proceeds will refinance existing debt. The dollar loan is proffered at L+275-300 bps with a 0.5% floor and the euro offering at E+350-375 bps with a 0% floor; the OID for both comes in at 99 to 99.5.

France’s laboratory services company BioGroup LCD is also in the market with a seven-year €1.65bn TLB, alongside €1.1bn of secured and unsecured notes. The TLB, which will be put to work refinancing existing debt, is slated to pay E+375-400 bps at an OID of 99.75. Insurance firm Howden Group, meanwhile, pushed out maturity of its €243m TLB to November 2027, proffering up a standard 25 bps fee and a six-month 101 soft call protection refresh in return.

Retail data and analytics firm NielsenIQ is also seeking lenders for a seven-year Bank of America-led $960m TLB and a UBS-led $650m-equivalent euro TLB with a call scheduled for 25 January. The funds will back NielsenIQ’s – previously Global Connect –  buyout by Advent International from the wider Nielsen Holdings.

Secondary

Vermaat & Waterlogic fresh acquisition feast bumps trading

M&A activity ushered in most of the loan secondary market’s pricing boosts this week. Hospitality services firm Vermaat’s €320m E+375 bps TLB rose 3.25 points to 93.50 on news that the Netherlands government green-lit an acquisition of assets, operations and staff of 44 La Place restaurants from Jumbo Supermarkten (21-Jan).

Water cooler manufacturer Waterlogic’s £87.5m TLB, meanwhile, buoyed by its continued shopping spree, saw a pricing bump to 98.50 from 96.00 this week. Waterlogic announced the acquisition of three Swedish companies (Vattentornet Aqua Concilio, Waterconcept and Thoreau International) earlier this month (06-Jan) that tops-off purchases of Colombia’s Hidrospot in December 2020, Tipperary Water Cooler in October 2020 and splurging €7.4m on US-based Elite Water & Coffee and Smart Water in September 2020.

Conversely, Nordic online travel agent Etraveli’s €240m TLB due 2024 enjoyed a pricing boost from ditching its investment in airline consolidator Huntington Travel, with pricing tightening to 94.625 from 92.625 since last week. The greatest pricing bump captured by 9fin, however, came from the two Douglas GmbH TLB tranches (€1.5bn total due 2022), which rose to 96.9 from 92.9 the week prior, following local media speculation of a 2022 IPO and strong Christmas trading. 

The greatest slide came from GTT Communications, whose triple hook CCC (with outlook negative) ratings blow from S&P saw its €750m TLB dropping from 90.375 to 87.600 over the course of the week. GTT Communications allegedly miscommunicated its financials to bond investors between May 2016 and November 2020, resulting in a class action lawsuit for the company to navigate alongside its ongoing $2.15bn sale of its infrastructure division to I Squared Capital.