LevFin Wrap

HY gets the gravy, Italian eyewear looking shady

By Huw Simpson | huw@9fin.com, Kat Hidalgo | kat@9fin.com

High Yield - Primary

Issuance remains strong, year to date volumes (€65bn equiv.) are now more than double last year's €30bn across Euro and Sterling tranches.

Before we turn to primary, a quick teaser for next week's full year and first quarter sales report. Top lines across high yield have begun to normalize, with notable bounce-back in the consumer discretionary space, despite lagging growth among energy and industrials. 

Optical Illusion

On Monday, Italian eyewear designer-manufacturer Marcolin announced €350m Senior Secured Notes due 2026 (B3/B-), with proceeds to refinance the existing 2023s, and repay drawings under the RCF and SACE facility. Legals show growth of percentage basket sizes vs. the 2023 FRNs, and hardcode EBITDA (as seen in Alain Afflelou and Douglas) to 2019 figures until June-2022 for covenant purposes.

Hardcoded EBITDA wasn’t the only trick pulled. Banker’s sleight of hand can be detected in the second decimal place used for marketing - after all - it’s still only 4 somethingtimes levered. Using LTM adjusted numbers we put leverage at 8.4x on the secured, and 9.8x overall.

Price talk came out at 6-6.25%, with document changes limiting EBITDA cost saving/synergies capped at 25% on an 18 month look forward. Final pricing landed in the middle, at 6.125%.

Through the looking glasses

Interestingly, the ‘Made in Italy’ designation only requires the last significant transformation to occur in Italy - the company chooses to interpret this as assembly from parts manufactured predominantly in China. Viewing this as a key differentiator - tighter laws governing the designation could have serious implications. For the twelve months ended 31-Mar-2021, ~53% of net revenues carried this designation.

Aah, Bisto

Oven ready, Premier Food’s launch of £300m Senior Secured Notes due 2026 marks the latest in a string of convenience food success stories. In February, Iceland priced £250m 4.375% SSNs, and fellow supermarket chains Asda and Groupe Casino both made light work of their respective LBO and stressed refinancings. And while frozen food group Picard gave investors the cold shoulder, failure was due to expectations on pricing, not demand.

Lockdown has been kind to the UK based food producer, which sells branded and unbranded products to most major supermarkets. These retailers capitalised on home-eating trends, and as the company reports - 4.5m new households purchased the Group’s brands in FY21. In fiscal year 2021, (ended 3 April) sales were up +10.3%, and EBITDA +9.6%.

Premier’s new notes (B1/BB-) will refinance the existing 2023s. The majority of its 2022s have already been redeemed - via cash from operations and the balance sheet - and proceeds from the sale of its share in a Hovis JV. Upsizing on Friday, an additional £30m will redeem the £20m outstanding 2022’s, and the remainder for general corporate purposes. Price talk of 3.50-3.75% was out on Friday morning, before finalizing at 3.50% .

After tying up the balance sheets of it’s UK (Cabot) and US (MCM) arms, consumer debt purchaser Encore Capital Group returned this week to refinance the last of Cabot’s expense 7.50% 2023 notes. Legals on the £250m 4.25% Senior Secured Notes due 2028(Ba3/BB+/BB+) are substantially similar to the existing 2020 SSNs.

Tinpot Targets

Dutch aluminium manufacturer Constellium rolled out with €300m in new sustainability-linked Senior Notes due 2029 (B2/B). KPIs are linked to (a) lower greenhouse gas emissions (by 2025) and (b) use of recycled aluminium (by 2026). Failure to meet each target by (a) Jul-2026 and (b) Jul-2027 will result in a 12.5 bps step-up each.

Eco credentials look questionable at first glance, and structurally, the notes can be redeemed at par in Jul-2026, meaning the group can refinance before the KPIs are ever tested. 

  • On the GHG target, a 25% reduction by 2025 is backdated to 2015 (meaning almost 10% of the 25% reduction was achieved by 2020)

  • On metal recycling, the ‘ambitious’ target of a 10% increase by 2026 looks fairly unambitious when compared to an expected CAGR of 3% through 2025.

The group last printed sustainability notes in February, with its $500m in 3.75% SUNsnow trading around 96.5.

On Wednesday, HY debut issuer Akropolis (BB+/BB+) arranged calls for a potential €300m of Senior Notes. The group owns and operates four shopping centres in Lithuania and Latvia, valued at €771m, and boasting 97.7% occupancy for the year ending Dec- 2020, with total assets (less intangibles) of €862m.

It appears the group can’t provide pro forma financials for the transaction, adjusted figures are given in range, and there’s no cash figure. Red flag?

Elsewhere, there were other signs of EM creeping into European HY. Turkish white goods manufacturer Arcelik (BB+/BB) is proposing 5-7 year €350m unsecured greens, and polish REIT Ghelamco (unrated), was out with IPTs in the 5% area for an expected 4 year €250m green EMTN offering.

And finally, crossover credit Ericsson put out IPTs on Wednesday of MS+125 area for no-grow €500m eight year MTNs (Ba1/BBB-/BBB-). Dutch DIY retailer Maxeda also priced a €50m private placement of its existing 5.875% 2026 Senior Secured Notes due 2026, although actual pricing levels are unknown as of publication.

Leveraged Loans - Primary

Variety is the name of the game this week, with €13.8bn-equivalent of issuance from a diverse set of borrowers. Issuers span several different sectors (not just healthcare and tech) as chemicals, other industrial businesses, and travel companies poke their heads above the parapet, in hopes of global recovery. Though healthcare has still contributed a good chunk of issuance this week, wide margins from Rodenstock and Acacium have spiced up the market for healthcare analysts, breaking up the malaise of Covid-bumped success stories.

Several international lenders are also trying their hand at the European leveraged market, with an Australian company, as well as several American issuers. While B3 paper continues to feature heavily in the pipeline, several B1- and B2- rated companies have entered the market, offering options for the more cautious buysider.

Ample acquisitions

Several acquisitions caught wind this week, as deals sailed in both directions across the pond. To finance the acquisition of US-based Vigon International, B3-rated Azelis priced a €330m add-on term loan at E+387.5 bps. Cash on the balance sheet and €50m of new sponsor equity will also be used to acquire the chemicals distribution group. The loan priced at the tight end of the E+400 bps guidance and at par, from a 99.5-100 OID. A 0% floor remains the same, as does 101 soft call for six months on the 2025 loans, which mature in line with an existing TLB.

Avantor (BB+/Ba3/BB, S&P, Moody’s, Fitch) tightened pricing on a €930m term loan B, which has now been allocated, to finance the acquisition of German peer Ritter for €890m. The financing includes a €250m five-year TLB priced at E+225 bps, from E+225-250 bps initial guidance; and a €680m seven-year TLB to pay E+275 bps, from E+275-300 bps  guidance. A 0% floor remains the same.

It has a 99.75 OID, tightened from 99.5 and soft-call protection of 101 for six months.

Rocket Software also issued a €275m tranche to an add-on loan to acquire ASG Technologies. S&P downgraded the business to B- upon announcement of the acquisition, while Moody’s affirmed its B3 rating. The enterprise infrastructure software provider also reduced a dollar tranche to $490m from $825m at launch. Both the $490m and €275m TLBs priced at E+425 bps, with a 0% floor at a wider 97.5 (from 98) OID.

Along came Sonia

Deals based on Sonia are now beginning to proliferate the market. The trend sits alongside a reticence for sterling loans that can be seen in Acacium’s hefty margins. Acacium Group’s (B/B1, S&P, Moody’s) £375m cov-lite TLB priced at SONIA+525 bps this week, with OID squeezed to 99.0 from 98.5. The proceeds will go to a refinancing and dividend recap, only eight months after being acquired by Onex Partners. 

Buysiders saw strong fundamentals in the healthcare staffing business, with heavy customer concentration in NHS England balanced by a supportive regulatory environment and good short- and long-term healthcare demand demographics. Rating agencies forecast EBITDA margin growth, with ample free cash flow and an ongoing international expansion push, as further positives. Recommitments were due yesterday, Thursday 20 May. See our loan preview here

This contrasts with Belgian aluminium systems manufacturer Corialis, which is out with a €889m-equivalent dual-currency term loan backing Astorg’s acquisition of a majority stake.The B1/B financing packaging, split between a €629m 2028 tranche and a £224m 2028 sterling tranche, is guided at E+350 bps from E+375 bps and 99.75 OID and SONIA+450 bps from SONIA+450-475 bps and 99.5 OID respectively, with the sterling offering’s margin bumped only marginally to account for limited sterling loan appetite. 

Building on a bumper 2020, the cyclicality of the sector was counterbalanced by Corialis’s resilience through downturns for buysiders. Some concerns around raw material hikes were also brushed aside in favour of the sustainable pros of aluminium versus its plastics alternatives, European geographical spread and expansion under competent management. Commitments are due today, 21 May 2021, with some chatter on docs modifications. See our loan preview here.

Motor Fuel Group (MFG) (B/B2, S&P/Moody’s) is also back in the market, to refinance its existing £700m and €785m TLBs. They will be repriced to S+Cas+475 bps and E+375 bps from+450 bps and E+35 bps respectively. Both tranches have unchanged 2025 maturities, while investors are being offered a 25 bps waiver fee and up to £70m of new paper, fungible with the £700m TLB as at an OID of 99.75.

In addition a new €300m non-fungible new TLB is on offer with the same June 2025 maturity and E+375bp margin at an OID of 99.75.

Healthcare holding on

While the sector mix of this week’s loans in syndication, healthcare still played a dominant role in the market with Acacium and Avantor also moving through the market. In addition to Acacium, Rodenstock also offers healthy margins, above the year-to-date average price of 372 bps healthcare deals, according to 9fin.

Guidance for Rodenstock’s €660m seven-year covenant-lite TLB, currently in syndication, is set at E+475 bps with a 0% floor and a 98.5-99.0 OID. The financing will back Apax Partners’s acquisition of the ophthalmic devices manufacturer from Compass Partners for €1.275bn. According to a source close to the situation, the marketed EBITDA of €125m (expected EBITDA for 2021), gives the business a 10.2x EBITDA acquisition multiple.

The business (B-/B3/B-, S&P, Moody, Fitch) suffered a revenue drop of 11% and an EBITDA decline of 13% in 2020, and buysiders still remember the company’s chequered history, which saw the company enter a financial restructuring in 2011. Commitments are due today, 21 May 2021. See our loan preview here

Price talk for Santa Cie’s €530m term loan B is also guided at E+400 bps. The covenant-lite seven-year TLB will refinance existing debt and reimburse convertible bonds. The French home medical assistance company’s loans will have a 0% floor and a 99.5-100 OID and 101 soft call for six months. Interest margins will have an ESG-linked ratchet that increases or decreases by 7.5 bps, subject to certain KPIs.

In another example of the continuing trend of ESG-related terms in healthcare deals, CVC-backed Mehilainen (B/B2/B, S&P, Moody’s, Fitch) priced its ESG-linked TLB2 at E+362.5 bps, the tight end of revised guidance. The Finnish healthcare provider’s loan will print at par after it was increased to €1.06bn from €300m. 

Far from home

Of the loans and RCFs currently in syndication, equalling an equivalent of €13.8bn, more than €9.4bn has been brought by companies based outside of Europe.

US-based software company Solera (B-/B3, S&P, Moody’s) launched a $5.235bn seven-year multi-currency loan to refinance existing debt and for general corporate purposes including funding acquisitions, according to LPC.

The financing comprises a $3.38bn term loan B, guided to pay L+400-425 bps with a 0.75% floor, a €1.2bn TLB, guided to pay E+400-425 bps with a 0% floor, and a £300m TLB guided to pay SONIA+500 bps, with a 0% floor.

Fibre network operator Vocus Group (Voyage Australia) also mandated Morgan Stanleyas lead global coordinator and Deutsche Bank and Natixis as joint bookrunners for a AUD1.85bn equivalent TLA and AUD150m-equivalent delayed draw TLB.

Also in the market is US-based cruise line operator Carnival, with a repricing of its dual-currency term loans to reduce its borrowing costs. A $1.9bn, 2025 TLB is guided to pay L+375-400 bps, with a 0.75% floor at 99.5 OID, while a €794m TLB is guided to pay E+400-425 bps, with a 0% floor at 99.5 OID.

Travel retailer Dufry, has extended the maturity of its existing €500m term loans to 2024, with a SFr1.62bn-equivalent debt refinancing amid hopes of recovery in air travel volumes. The loans follow a financially difficult 2020 for the B1-rated Swiss business, which posted turnover of CHF2,561bn and organic growth of -69.8% year-on-year. The company has also secured a one-year extension of its covenant holiday on the financing until June 2022.

The next test date for covenants is September 2022 with a maximum of 5.0x net debt to operating cash flow for September 2022 and December 2022, before reverting to 4.5x in 2023.

In its base case Moody's calculates trailing twelve month gross leverage, measured as Moody's-adjusted Debt to EBITDA, will remain above 10x in 2021 before improving to around 6.5x by the end of 2022. The refinancing, through a mixture of senior and convertible bonds, also paid down a $700m term loan to $550m and repaid around €558m drawn from its €1.3bn revolving credit facility.

In other news...

  • Greece-based Diana Shipping signed a US$91m sustainability-linked loan via ABN AMRO. The senior secured term loan will be used to refinance four existing loans secured on the borrowers' vessels and for general corporate purposes.

  • Equipment firm Boels (exp BB-/B1/BB-, S&P, Moody’s, Fitch) is back in the market for a reprice of its existing €1.335bn TLB while upsizing the facility to €1.45bn in a leverage neutral transaction that will refinance the existing TLA. Pricing will be cut to E+325 bps from E+375 bps with 0% floor, while OID is guided at 99.5-99.75. Call protection will be reset to 101 for six months. Commitments are due 28 May.

High Yield - Secondary

It was a non-mover week in Secondary (48% +0.23 pts | 48% -0.21 pts). Industrials tracked the greatest gains (+0.13 pts), closely followed by Energy (+0.12 pts), while IT saw the only real loss (-0.11 pts). By Rating group, Unrated firms were up +0.08 pts, Single B +0.01 pts, Double BB +0.00 pts, and Triple CCC down -0.04 pts.

Similarly, the iTraxx European Crossover was flat on the week, quoted at 259 bps today, widening just 3 bps since last Friday.

Leveraged loans secondary

The market remained flat this week, with no major movers on the positive or negative side. From a sector perspective financials showed the largest growth with a 0.15 pts move upwards, with no substantially decreased sectors.