Guarded welcome for fresh securities, Oil be back, Stereo-Tipico refi wave
[Due to doc size restraints, this is an abridged version of the LevFin Wrap]
High Yield Primary
High Yield supply was again in full flow, as ten new deals launched this week, offering another €8bn in new notes.
In the words of our Editor, the Bain-Cinven spinout of Lonza’s Specialty Ingredients unit was ‘well covered’ this week. You can read our Legals, Loan-Legals, Credit, and FinancialQuickTakes for full details, as well as the deal review ‘Lonza to clean-up with Covid hygiene and add backs booster’.
Success for the company revolves around the ability to generate significant cost savings, which will reduce the impact of heavy capex spend on the transformation plan, and separation costs. Even prior to the transaction, the group generates solid FCF, and hopes to further optimize working capital, estimated to increase cash by up to CHF 136m (€124m) in the next 18 to 24 months. Some execution risk remains, however it’s been well noted that the sponsors have a good track record on spinouts.
The $350m Senior Secured Notes due 2028 (B2/B) and €460m Senior Notes due 2029(Caa2/CCC+) were talked at 4.875% area and 5.5% area respectively. The $1,130m and €725m TLBs launched at L/E+400 bps (99.0/99.5 OID).
Investors on Guard
On Thursday, US security firm Allied Universal launched the bond leg of its acquisition funding for UK competitor G4S. The combined group generated pro forma revenues of $18.4bn and Adjusted EBITDA of $2.0bn, and according the company, will be the largest provider of security services worldwide. The financing is split across the following tranches:
€813.0m Senior Secured Notes due 2028
£367.7 Senior Secured Notes due 2028
$900.0m Senior Secured Notes due 2028
$775.0m Senior Secured Notes due 2028
$1,285.0m Senior Notes due 2029
Legals on the deal are largely ‘sponsor-favourable’. The most notable are the ‘no worse’ leverage-based Permitted Investments capacity, lack of Default/Event of Default blockers on accessing the Restricted Payments Builder Basket, and the uncapped EBITDA add backs (including for revenue synergies).
Perhaps most interestingly, ESG considerations for this credit are substantial. According to the OM, allegations against the combined group (although mostly at G4S) include; high prison assault rates, lost and stolen weapons, fraudulent invoices, incomplete background checks, price fixing, serious or systematic human rights abuses, accusations of war crimes, and even litigation regarding providing alleged support to the Taliban.
Oil be Back
Dodging a restructuring, or even and A&E exchange type offering, Oil and Gas exploration and production firm Tullow Oil has set its sights on a more vanilla refinancing. Offering $1,800m Senior Secured Notes due 2026 (B2/B-), the group hopes to refinance $1,430m drawn under its RBL Facility, and the $650m Senior Notes due 2022 - leaving the 2025 SUNs in place. The move leaves overall net leverage at 3.0x EBITDAX, but will increase secured leverage from 0.8x to 2.0x. Our Credit QuickTake can be read here, while the covenant package came in reasonably creditor-friendly. Virtual deal roadshow meetings are scheduled until Wednesday.
Elsewhere, we tracked a slew of more traditional refinancing activity, including two debutants rolling out of loans.
Center Parcs, the group behind a UK and Irish network of holiday villages, bolstered the Sterling supply offered by Allied Universal. A £255m tranche of Senior Secured Notes due 2027 (B-/B) priced at 4.50%, and proceeds will indirectly redeem £250m of B3 SSNs. Due to the ongoing restrictions in place for holiday-makers, covenants on the deal use the same Feb-2020 numbers employed to market the Sep-2020 £250m SSNs. Versus the prior year, EBITDA for the 36 weeks to Dec-2020 is down £168.3m, to just £11.6m - occupancy for that period was just 30.5%.
Italian bio-pharmaceutical group Kedrion announced €410m in Senior Secured Notes due 2026 (B1/B). Proceeds will partially redeem the existing €350m Senior Notes, issued in Jul-2017 (the remaining €200m stub to be granted security pursuant to the transaction), and refinance the existing credit facilities in full. Final pricing settled inside IPTs of high 3s for 3.375% at par, although breaking for trading showed little promise - down at 99.50/99.75.
Across the border, French building materials group Consolis debuted in HY with €300m 5.75% Senior Secured Notes due 2026 (B3/B-), refinancing Term and PGE Loans - proceeds from a €50m MidCo PIK Loan will be indirectly contributed as part of the transaction. Legals on the deal are straightforward, with an asset sale carveout for the Rail and Civil Works France disposals. Acquired by Bain Capital in Dec-2016, the group manufactures and assembles precast concrete for the building industry, predominantly in the Nordics (60%). The sponsor reportedly abandoned its €135m IPO on Euronext Paris in 2018, blaming volatile markets.
Another first timer - Actera owned Standard Profil - turned to HY to refinance bank loans, offering €275m in Senior Secured Notes due 2026 (B3/B-). The group has no RCF, and relies on cash generated from operations and factoring to provide liquidity (proceeds will also go towards unwinding a cash management facility for €79m). The German automotive parts supplier produces weatherstripping (the seals around car doors, windows and windshields) for all major car manufacturers and is the third largest of its type in European (fifth globally). Price talk of 6.25-6.50% emerged on Friday.
Other ESG Primary
On Monday, German auto-parts manufacturer ZF offered €500m Senior Notes due 2027 (Ba1/BB+), pushing out maturities and cutting interest costs in an opportunistic green print. Landing at 2.00%, the notes cut through IPTs of 2.25-2.375%, aided by yield hungry IG accounts and high-minded ideals. The ESG Framework takes aim at the usual suspects, citing products for new electric/hydrogen vehicles, alongside renewable energy, pollution prevention/control, and energy efficiency.
Next up, two issuers placed debut sustainability offerings.
Rexel - The French wholesale distributor of electrical products, wired in €300m in 2.125% Sustainability-linked Senior Notes due 2028 (Ba3/BB-). The ESG Framework sets out two KPIs related to GreenHouse Gases (GHG), the first, ‘Scope 3’ aims to reduce emissions in products used - these represent 93% of GHG emissions across the group’s value chain. Scopes 1 & 2 aim to reduce emissions created within the group. Helpfully backdated to 2016, Scope 3 aims for a 23% reduction by Dec-2023 (16% already achieved), Scopes 1 & 2 aim for a 23.7% reduction over the same period (25% already achieved, although accelerated by Covid).
Leveraged Loans Primary
A hefty €13.810bn equivalent of Lev Loans were in the market this week, including €5.512bn-equivalent of fresh meat. This week gifts us with the whole spectrum of ESG angles to consider, as sustainability ratchets remain in vogue – but so does oil.
The most eye-catching case of ESG concerns comes from security services provider Allied Universal, who muscled in this week with a dual-currency TL package to support its acquisition of UK security group G4S for an EV of £5.4m – a move that will roughly double Allied’s revenue but brings an almost satirical litany of ESG red flags. The bond section above gives a flavour of these, but see a full breakdown in 9fin’s Credit QuickTake.
Allied provides security solutions both corporeal and technological (i.e CCTV), while G4S adds prisons to its combined operations. The acquisition follows a $84.3m net loss for Allied. A combined pro forma adjusted EBITDA of $1.956bn gives secured leverage of 4.2x and net leverage of 5.5x. The two companies carry $10.735bn pro forma combined net debt, of which 77% ($8.308bn) is secured.
Both a $950m (B2) and a €715.5m TLB (B2) are guided at E/L+375-400 bps and 99 OID. The dollar loan has a 0.75% floor, while the euro loan has a 0% floor. The TLs are accompanied by over $1bn of equity from PE sponsors Warburg Pincus and Caisse de dépôt et placement du Québec (CDPQ) as well as cash.
Keeping your hands green
Now, for loans from both sides of the great climate catastrophe. Two more sustainability-linked loans greened our space this week: Lonza Speciality Ingredients’CHF1.834bn (€1.66bn-equivalent) Term Loan package backing its spin-out followed its bond by affixing an ESG margin ratchet. The CHF1.028bn-equivalent ($1.13bn) dollar TLB priced at the tight end of L+400-425 bps, while the CHF806m-equivalent (€725m) euro TLB swung to the wide side of E+375-400 bps.
Elsewhere, a carbon-curtailing classic: wind turbines. Manufacturer and servicer Vestassigned a €2bn sustainability-linked RCF, with pricing linked to KPIs including its carbon footprint, workplace safety and carbon emission along the supply chain.
On the other side of the divide, oil extraction and development company Aker BP pushed out the maturity of a financing inked in April 2019. An L+125 bps 2022 working capital facility now matures in 2024 with an extra two-year optionality and the loan has also been cut to $1.4bn from $2bn. An L+100 bps 2024 liquidity facility was extended to 2026.
Another comes from Puma Energy (not to be confused with the shoes). The Singaporean multinational – which provides services including supply, storage, refining and retail of petroleum products – closed a $586.5 one-year refinancing this week. Proceeds with refinance $310.5m one-year loan signed in April 2020, as well as the $286m remaining of a $800m TL agreed in May 2016.
Oversubscription from 18 banks inflated the loan from an initial $450m. The financing is made up of an RCF and a TL with two one-year extension options and one 90-day extension option.
Socotec supplies €40m recap
French company Socotec is the only newbie this week to bestow a recap upon its sponsors: a slim €40m of a €800m-equivalent refinancing and recap (B2/B). Socotec provides technical and inspection services, including site inspection, asbestos and fire safety, testing construction materials and, more recently, COVID security. 67% shareholder Cobepa bought in in 2013, while Clayton Dubilier & Rice scooped up 31% in 2019. The recap partially recoups €42m injected into the business in Q4 2020 to back Socotec’s bolt-on acquisitions of Veritas and Cementys.
Making up this debt package, a €550m TLB due 2028 guides at E+375-400 bps and 99.5 OID, while a $300m TLB guides at L+425-450 bps. Both loans have 25 bps at 0.5x deleveraging: the euro with three step downs and the dollar two.
German online betting firm Tipico is out with a €1.455bn refinancing (B). The seven-year loan, guiding at a humble E+400-425 bps and 99.5 OID, comes with a minimum EBITDA covenant of €20m. The business was last in the market in summer 2019 with another repricing, that time €585m at E+400 bps. Majority owner CVC Capital Partners will transfer the firm into a new fund,writes S&P.
Tipico won its sports betting license in October last year, but agencies believe litigation risks linger, including players using the courts to recoup losses. This is an industry wagering on regulation, however Tipico is currently beating the house. A treaty legalising online gaming under some restrictions clinched support from enough German states to be enforced this year. Legal challenges to a €1,000 deposit limit for online betting are also currently in the German courts, but are not expected to be resolved until 2022.
Cerba serves a €1.5bn TL
Finally, France-based diagnostic lab group Cerba is out with the week’s most Rubenesque offering: a €1.525bn 2028 TLB to back its acquisition by EQT. Expected to launch next week, €420m of secured and €325m in unsecured Notes will make up the balance of the funding.
The transaction puts an enterprise value of €4.5bn on the French laboratory group, according to LPC, making it one of the largest in French history (the winner being Solocal’s €6bn 2006 buyout, followed by Legrand’s €4.9bn 2002 sale). Like other healthcare firms, Cerba recently released booster Q4 2020 results on the back of the pandemic, including a 71.8% and 125% leap in sales and EBITDA respectively year-on-year.
In other news:
German market researcher GfK priced its seven-year €650m TLB at E+375 bps and 99.5 OID, beating initial guidance of E+400-425 bps and 99.0.
Both business software firm Unit4 and sports marketing firm Infront took commitments on their TLs this Thursday. Infront was the higher flier at E+525-550 bps on its €300m offering, while Unit4’s €675m TLB was some 100 bps lower at E+400-425 bps. Unit4’s fund backed an acquisition by TA Associates, Partners Group and a series of other co-investors in then-owner Advent International’s second attempt at a sale.
Irish marketing products producer Cimpress revised terms on its seven-year $1.15bn TLB package modifying its collateral package and adding restrictions on IP transfer. Additional MFN protection was also added, alongside a springing maturity. A $795m TLB guides at L+350-375 bps and 99.0-99.6 OID, while a €300m TLB guides at E+350-375 bps and 99.5 OID.