LevFin wrap

Red Rugs, Green SPACakaging, Spring of Discontent

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

Tracking nearly 80 results announcements this week, the pandemic continues to lie heavy on earnings, with revenues across these names down an average of -9.1% (median -4.3%), with corresponding EBITDA -19.2% (median -3.2%). Despite the numbers’ barrage, issuers found space to offer three new deals, from ‘innovative flooring’ providers to SPAC can spinouts.

High Yield Primary

Rolling out for comrade Victoria

Enigmatic carpet manufacturer Victoria PLC was first to hit the floor this week, offering €350m in Senior Secured Notes (B1/BB-/BB) following ‘continued strong operating performance and favourable market conditions’. Proceeds from the offering were ticketed for general corporate purposes, in particular to complement ‘earnings accretive’ acquisitions, as well as a partial redemption and tender for the existing €500m SSNs due 2024. The group has been on an acquisition spree in recent years, collecting Interfloor, Ezi Floor and Hanover in the UK, Dunlop in Australia, GrassInc and Avalon in the Netherlands, Serra, Ascot and Keradom in Italy, and Keraben, Saloni and Ibero in Spain between 2015-2021.

Healthy demand saw the original books more than 7x oversubscribed, and allowed the group to upsize the deal to €500m, with the additional proceeds bringing total targeted redemption of the 2024s to €200m, paying up on the make whole to first call in July-2021. Combatting this, interest costs have been slashed, as IPTs in the 4% area gave way to talk at 3.75-4%, with pricing inside the tight end at 3.625% - 162.5 bps inside the Notes issued in July 2019.

While Victoria had to offer 104 on the €200m tender, a €50m chunk was taken out using the 10% at 103 optional redemption clause - a metric we’ve added to our coverage of European HY. While the feature has grown in frequency over the last year, its notable inclusion in the unsecured Verisure Notes issued Jan-2021 marks an uncommonly aggressive move, only otherwise seen in Millicom’s Jan-2020s SUNs across the period below.

Unusually for a UK based designer-manufacturer of ‘innovative flooring products’ (carpets) the group takes leadership inspiration from a certain little red playbook (and is the only credit we’ve tracked who mentions the former chairman of the PRC):

We subscribe to little else he might have believed but concur unreservedly with Mao Zedong's comment on leadership, "Weapons are an important factor in war but not the decisive one; it is men and not materials that counts." - Preliminary Results YE 2019

SPACaging

On Thursday, packaging firm Ardagh Metal Packaging announced the debt portion of its spin out from parent Ardagh, and provided details on some of its more unusual funding sources. The $2.65bn green deal was marketed across both secured (Ba2/BB/BB+) and unsecured tranches (B3/B+/BB-), in USD and EURs. Covenants on the new deal include  200% Contribution Debt, which can be secured (subject to a leverage test - as seen in more aggressive deals), and day one RP & PI capacity (1.1x and 1.3x respectively). See our Credit and Legals Quicktakes for more details.

After a brief shuffle, moving €50m over from the EUR SSNs to the USD SUNs, tranches settled at:

No stranger to carve outs, parent Ardagh spun out its food and speciality metal business, combining it with aluminium container maker Exal Corporation - forming Trivium in a $2.5bn deal.

Additional funding for the new company comes from an unusual source; $525m from the Alec Gores V SPAC, alongside the usual $600m in institutional PIPE money. SPACs have come under increased scrutiny in recent times, as newly empowered retail investors aim for outsized returns from any resulting IPO pop.

Cash consideration to parent is $3.4bn, paid for by proceeds from the Notes, along with proceeds from the SPAC and PIPE. In the event the business combination fails, a promissory note of $1,085m is intended to be settled by new AMP shares to the parent - the new group intends to list on the NYSE.

Clean air in drive to survive

Slipstreaming the packager, Aston Martin found traction with a £70m stub of its well performing 10.5% Senior Secured Notes due 2025 (Caa1/CCC). Announced on Thursday, lead bookrunners on the intra-day deal J.P. Morgan and Barclays sent out punchy IPTs of 108.5-108.75, before pricing tighter still at 109. 

Despite the small size, the fully fungible Notes will pool into the sizable $1,085.5m existing Notes, which have accelerated since issuance in Nov-2020, from par to around 110 by mid-Feb.

As reported, management remained bullish on Thursday call, holding to 2021 forecasts, albeit running light on specifics. Expectations are for mid-teen EBITDA margins with around 6,000 vehicles to be delivered. The group shored up its financial position in 2020, raising £813m in new equity and extended its debt maturities with the stressed refinancing in November.

In other news

EG Group returned for its debt funding of Asda’s (and OMV Germany) petrol forecourts, launching $850m in loans as part of the $1.8bn package. An audit delay by KPMG has reportedly thwarted the groups ability to hit the public bond markets, and it is instead opting for a £675m private placement. The deal is expected with a coupon of around 6.25%.

After Pasticceria Bindi’s€350m 5.5% Senior Secured FRNs due 2027 were privately placed back in January, final pre-covid underwrite Golden Goose is reportedly close to hatching its deal. Bankers are hoping to place the financing in the second quarter of this year, after settling the audit of its 2020 accounts.

Leveraged Loans Primary

Now is the spring of our discontent

This week stayed slim, with repricings, refis and add-ons, along with a rash of medical companies, continuing to dominate – a state of affairs that buysiders and banking sources expects to continue to bloom through spring.

“It’s going to be a spring of thinner deals, refinancing and add-on,” lamented one buysider, with a banking source concurring that the market will likely be waiting until summer for a big LBO blowout.

All but one of new loans this week at least partially backed a refinancing. 

UK petrol station operator EG Group is pumping out a $850m-equivalent TLB as part of a $1.8bn-equivalent package fuelling its purchase of OMV Germany and Asda Forecourts. A $450m L+425-450 bps 2026 TLB (B3/B-/B, Moody’s/S&P/Fitch) with a 0.5% floor and 99 OID accompanies a €330m E+700-725 bps 2027 second lien tranche  (Caa2/CCC/CCC, Moody’s/S&P/Fitch), offered at 98.5 OID with a 0% floor. The sale of Asda’s petrol business to EG Group was announced alongside the Issa brothers and TDR Capital’s £6.8bn purchase of the British supermarket chain, for which they swept up £3.75bn in bonds and term loans.

Looking more closely at the refinancing frenzy, Garrett Motion stands out for size. The Switzerland-headquartered auto parts (mainly turbochargers) firm is at the front of the refi race with a whopping $1.25bn TLB, partly to refinance $200m in DIP financing ahead of a March 31, 2021 maturity. A €300m revolving credit facility tops up the funding.  

Garrett Motion filed for US Chapter 11 protection in September 2020, buckling under €3.2bn of liabilities and litigation worries with former owner Honeywell. The DIP funds, a senior secured TL led by Citigroup, paid L+450 bps with an 98 OID and 1% floor – upping to L+550 bps if the maturity creeps past March. A maximum of $250m was allowed and up to three separate one-month extensions are available. The new seven-year facility includes a $300m dollar tranche and $300m-equivalent euro tranche. Catch a 9fin Credit QT here and request a Legal QT here.

Demand-heavy technicals were especially evident this week with Centrient’sopportunistic repricing grab. The Dutch anti-infection drug maker, originally in the market with just an €180m add-on to back its acquisition of India’s AstralSteriTech, ending up closing a €515m loan package today after deciding to reprice a €335m TLB originally issued in 2018. The €335m TLB, first backing its purchase by Bain Capital, repriced from E+475 bps to either A) E+425 bps with 101 soft call for six months, 99.75 OID for new lenders and 100 for existing lenders; or B) E+450 bps at par with no soft call protection. A ticking fee of 50% kicks in at 60-days, rising to 100% after 90-days.

UK nursery chain Busy Bees’ €585.9m-equivalent TLB, made up of £365.9m and €250m tranches, will refinance existing and predominantly sterling debt. Funds are guided to pay L+475 bps and E+400-425 bps and 99.0 OID. Busy Bees last raised debt in September 2019 with a £100m-equivalent (£55m/€50m) add-on at L+475 bps and E+450 bps.

Also refinancing existing debt, electronic chemicals company Atotech is offering a $1.35bn 2028 TLB – including a $500m tranche allocated to Bank of China – and a €200m 2028 TLB (B1, Moody’s following a corporate rating upgrade this week) after closing out an IPO at the beginning of February. The public offering, in which sponsor Carlyle did not sell off its shares, came in cheaper than expected, raising $498m through 29.3 million shares at $17, below the initial price range of $19 to $22. Existing facilities include $1.6bn of senior secured loans due 2024 and a $250m 2022 revolver.

Edilians upped its refi loan (B2/B, Moody’s/S&P) by €25m to a now €685m 2028 TLBfollowing strong demand. Some buysiders expressed wariness over the associated dividend recap in a cyclical industry, but company fundamentals, sponsor Lone Star’s experience in construction and market undersupply has won out. Lone Star snapped up Edilians, previously Imerys' roofing business, for €1bn in May 2018 at nearly 9x times its €115m EBITDA – roughly equal to the €110m dividend recap the sponsor now feasts upon. Read more here.

Shaking things up from refinancings, was a flood of repricings: 

Swedish constructions firm Ahsell is looking to reprice a €1.558bn E+425 bps 2026 TLB(B1/B+/B, Moody’s/S&P/Fitch) and build up with a €250m add-on that, buddying up with SEK1.5bn in cash, will repay an existing SEK3.9bn (€385m) second-lien loan.

Elsewhere, British pharma firm Atnahs sliced an impressive 100 bps off a now E+400 bps €614m TLB in its repricing after initial guidance of E+425-450 bps. Separately, a €58m 2026 add-on will repay revolving credit facility drawings.

And finally, US water treatment firm Solenis allocated its €783m 2025 repricing (B3/B-, Moody’s/S&P) at E+400 bps and 99.875-par guidance. Solenis raised a $550m-equivalent TLB in November 2018, with a €330m 2025 loan coming in at E+425 bps with a 0.5% floor at 99.75 OID and a $170m 2025 loan pricing at L+400 bps with a 0% floor at 99.25 OID.

Meanwhile, in a breather from refi-repricing land, one LBO, albeit a slender one, wound up this week: 

Germany’s NextPharma tightened terms on a €290m 2028 TLB (B3/B, Moody’s/S&P) to E+400 bps from E+425-450 bps. The funds back both the acquisition of two sites from Swiss chemicals company Lonza and a fund-to-fund transfer within CapVest – a less common form of sale that banking sources expect to become more common in 2021.

Illustrating this, sponsor Advent International is backing a fund-to-fund sale of Dutch medical supplier and home care firm Mediq with its €500m 2028 TLB (B2/B, Moody’s/S&P). The internal sale appears to have displaced plans for an external one – Reuters reported that Mediq was up for a €1.2bn sale in October 2020. Buyside sources put Bain Capital and CDR as final bidders. 

Pricing of the seven-year facility firmed at E+350 bps and par, down from E+375-400 bps guidance at launch, with buysiders wooed by the firm’s recent acquisition binge and performance through Covid despite adjusted leverage of 5.5x-6.0x (per ratings agencies) and ongoing pricing pressure from insurance companies. Read more here.

High Yield Secondary

Secondary movement was mixed on the week, with 39% names +0.64 pts and 59% -0.39 pts. Industrials (+0.38 pts), Financials (+0.21 pts) and Real Estate (+0.19 pts) saw the only notable gains by industry, although Energy traded up another +0.07 pts, totalling +1.34 pts on the month - the greatest move.

Finally, the iTraxx Europe Crossover was quoted at 264 bps on Friday, moving well outside the 248 bps level seen last week, albeit still at relatively tight levels historically. In fund flows, EM debt continued to dominate with weekly inflows (as a % of AUM) at +3.3%, outperforming IG (+0.9%) and HY (+0.5%). For European domiciled HY credit funds positions were reversed on week, with Global HY posting a +$354m gain, while US HY and Euro HY were down -$608m and -$445m respectively.

Leveraged Loans Secondary – Cinemas star in roadmap rager

News of the UK’s path to freedom saw cinemas top-billing the secondary market this week. Cineworld continues its moonshot (+5.6 pts to 80.1 for its €607.7m E+265 bps 2025 TLB), this week taking rival Vue with it (+4.6 pts to 87.0 for its three TLBs, €114m E+475 bps 2026€631m E+475 bps€114m E+525 bps 2023). 

Travel and hospitality firms also surfed the wave as Brits readied their newly blue passports, with HotelbedsViagogo and A&O HotelsandHostels all enjoying at least a point bumps to their loan prices.

These were bright spots in an overall muted market this week, however, proffering few opportunities for secondary players. On the euro side, Communications Services led the ways at +0.4 pts and IT brought up the rear with -0.06 pts, dragged down by restructuring candidate Carlyle-owned Comdata’s -2.8 pts slide on its €355m E+500 bps 2024 TLB to 54.8 this week. Across the pond, US Consumer Staples and Energy were down -0.03 pts and -1.6 pts respectively, while Consumer Discretionary jumped +0.2 pts.