LevFin Wrap

Flight footed bankers take bookrunning literally, hawk sneakers

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

High Yield Primary

Kicking off another busy week in primary, long awaited Golden Goose rolled out, marking the final pre-covid underwrite to reach High Yield. Some €470m of Senior Secured FRNs due 2026 (B2/B-/B+) will replace the equal-sized bridging facility, with fees covered by cash on balance sheet - a €75m super senior RCF will remain €25m drawn. IPTs for the notes were reported at E+550-575 bps, later snipped in price talk (E+500 bps area, 98 OID), and further revised to E+487.5 bps (OID unchanged). Adjusting for the discount, gross proceeds will be €480m.

Self proclaimed pioneers of the ‘casualization’ and ‘sneakerization’ trend, the company designs and distributes luxury trainers - manufactured by outsourced Italian artisans - across 70 countries.

Sponsor Permira announced the acquisition in February 2020, for an enterprise value of €1.3bn - giving a 14.2x EV on 2019 EBITDA of €91.6m. Bumper revenue growth over previous years more or less flatlined in 2020 during the pandemic, although new store openings offset LFL sales declines. Headline metrics are very good considering, EBITDA margins are high (around 30%), and the group generates solid free cash flow. This latter part is likely to decline due to aggressive expansion plans, and execution is key - there lies a fine line between expansion growth and maintaining that ‘exclusive’ edge, especially among such fashion fickle customer base.

For legal reasons, Italian leveraged loans are rare, with most issuers utilizing the public bond markets instead. Going down the FRN route maintains a shorter non-call period (here NC1.5), which will allow quicker - and presumably cheaper - refinancing if the expansion pays off.

TUI Cruises, the TUI AG and Royal Caribbean joint venture cruise operator, made a debut offering on Tuesday with €300m Senior Notes due 2026 (Caa2/CCC). As of January, the vessel appraisal value was around €3.9bn, and the notes will sit behind more than €3.4bn of secured debt. Pricing at 6.50% (for par), the notes didn’t slip far inside IPTs of 7.00% area and PTs of 6.75% area. Legals were straightforward for a cruise operator.

Based in Hamburg the group serviced 34% of the German speaking market in 2019, with over 720,000 passengers travelling to more than 500 cities. Scuppered by the pandemic, five ships returned to duty in July 2020, helping temper monthly cash burn which averaged €30m since August. Proceeds from the offering will bolster cash, which together with undrawn amounts under the two term loan facilities gives liquidity of €611.1m, or just over 20-months horizon.

On the ESG front, and following Ardagh Metal Packaging greens, glass packaging group Verallia wrapped up an inaugural sustainability-linked SUN offering on Thursday (BB+). The €500m Senior Notes due 2028 pay just 1.625%, with IPTs of 1.875-2.00% cutting to final guidance of 1.50-1.625%. Books reached €2.1bn, trimmed to €1.7bn at the tight end of guidance.  

The sustainability element links two KPIs, CO2 emissions and recycled glass usage. On emissions, the target is a 15% reduction from 2019 to 2025, for recycled glass, the target hopes to reach 59% of external cullet by 2025 (49% in 2019, 51.6% in 2020). A coupon step-up of +25 bps occurs if neither targets are met, or +12.5 bps if only one is met.

Elsewhere, Oil and Gas E&P group Tullow completed its bumper $1.7bn ABL and $650m SUN refinancing. Holding to double digits, the new $1.8bn Senior Secured Notes due 2026 pay a tempting 10.25% coupon, the tight end of 10.25-10.50% IPTs (B3/B-). In secondary, the bonds are trading at 103.625, a 9.2% yield and closer to initial guesses in our deal preview.

Funding for Allied Universal’s acquisition of UK security group G4S muscled through High Yield, despite numerous social and governance issues. A slight shuffle downsized the unsecured dollar portion, with an equal increase to the dollar secured’s, and all tranches settled at the tight end or even inside price talk.

On Thursday, French opticians chain Alain Afflelou launched €410m Senior Secured Notes due 2026 (B2/B/B). A €75m Senior Sub FRN tranche due 2027 is also offered (Caa1/CCC+/CCC+). Together with €106m of cash on balance sheet, proceeds will refinance €415m of existing debt, repay €30m PGE loans, and fund a dividend via a partial shareholder PIK bond repayment of €135m. Operating mainly through franchise arrangements, the group counts 1,435 stores in its network - with France making up 76% revenues, Spain 20%. 

Covenants on the deal are substantially similar to the 2017 SSNs, although LTM EBITDA is hardcoded for the next two quarters using elements of 2019 figures (substituting H1 2020 EBITDA for H1 2019). Portability is available day one.

Other issues this week include German Automotive supplier MAHLE (Ba1), which has sent out IPTs of 2.625% area on a seven-year benchmark Senior Notes transaction. The group generated sales of €9.8bn in 2020, and has €1bn in maturities before 2022 (€1.5bn by 2024). Final terms are €750m, yielding 2.375% - pay date is 14-May. Another double B name, French wholesale electrical products distributor Rexel announced a €100m fungible tap of its €300m sustainability-linked 2.125% SUNs due 2028 (Ba3/BB-). The final price was 100.875.

Finally, bond financing for EQT’s acquisition of Cerba, namely €420m of Senior Secured Notes due 2028, and €325m Senior Notes due 2029 launched on Friday. Commitments on the €1.525bn TLB portion are due 12-May.

Leveraged Loans Primary

Heavy weights CerbaTipico and Allied Universal provided the largest chunks of issuance this week, perhaps providing some respite to buysiders served measly allocations on smaller deals in the last couple of weeks. With the allocation of both Tipico and Allied Universal’s loans, buysiders are back to digesting smaller portions, with €3.6bn equivalent currently in syndication, down from €13.8bn last week. ESG issues have given buysiders a lot to think about of late, while the flood of B3 paper has yet to be stemmed. 

France-based Cerba is the next in 2021’s queue of diagnostics firms to hit the leveraged loan market, boosted by PCR testing-driven bumps to revenue and EBITDA, following Synlab and Biogroup LCD. To back EQT’s €4.5bn purchase of Cerba, the business has launched a €1.525bn term loan B, alongside €420m of other pari passu secured debt and €325m of unsecured debt. Buysiders should be impressed by the company’s strong 2020 financial performance, including a 34% EBITDA margin increase, and solid growth in two of its focus areas: specialised testing and clinical trials. The credit is rated B1 by Moody’s and single B by S&P.

When push comes to human rights violation

The market had to face certain ESG considerations this week, as Allied Universal’s huge swath of issuance passed through the market.  The Warburg Pincus and CDPQ-backed behemoth is using the financing to purchase G4S for £3.8bn. The move will make Allied Universal the third largest employer in America, but the acquisition also hosts a laundry list of ESG concerns, including, amongst the most shocking, human rights violations on the part of G4S. Buysiders showed their cards, as the €715.5m, 7-year cov-lite TLB priced at E+375bps (subject to step downs), at the tight end of guidance of E+375-400 bps, with a 99.5. OID. Floor is 0%.

The euro-denominated TLB will sit alongside a host of high-yield bonds and a $950m TLB, priced at L+375 bps with a 99.5 OID from guidance of L+375-400bps and 99.0 with 0.75% floor. See a full breakdown of the company in 9fin’s Credit QuickTake.

Sports betting firm Tipico also finalised terms at the tight end of guidance for its €1.455bn term loan B, despite the questionable ethics of the industry. The seven-year term loan priced at E+400 bps with a 0% floor and a 99.75 OID. It was guided at E+400-425 bps with a 0% floor and a 99.5 OID. The loans will refinance bank debt, in part raised to pay three dividends for CVC. The PE house acquired a majority of the business in 2016 with €720m of equity and €620m of leveraged loans. After a 2019 dividend, CVC no longer holds an equity stake in the business, though it will now be transferred to another CVC fund, according to S&P.

However, the market did hold strong on Infront, which pulled out of its syndication in favour of seeking a unitranche, according to online sources. Buysiders spoke to 9fin of their concerns surrounding management of the company, which even guidance at E+525-550 bps and a 98.5 OID could not soothe. The sports marketing firm, which has suffered from accusations of nepotism, improper gifting with regard to contracts and criminally fraudulent activities over the years, was in the market with a €300m senior secured TLB (B2, Moody’s), a €50m pari passu senior secured revolving credit facility (B2, Moody’s) and a €100 million second lien senior secured TLB (Caa2, Moody’s). Read our loan preview here.

In other ESG news, and continuing 2021’s festival of ESG ratchets, Mehilainen guided pricing for its €300m ESG-linked term loan B, at E+375 bps with a 0% floor at 99.50-99.75 OID. The CVC-backed private healthcare company will use the loan to refinance a more expensive second-lien and repay a portion of the first-lien term loan. The financing will also provide cash for future M&A and general corporate purposes. The margin is subject to a 10 bps ESG KPI-based ratchet, that can rise or fall depending on performance. ESG ratchets are in vogue for private healthcare companies, with French private hospital chains Ramsay Sante and Elsan coming with similar terms earlier this year. The B2-rated loan is offered with 101 soft call protection for six months.

CVC finds itself in a third deal this week, with Corialis, an aluminium systems manufacturer coming to market with a seven-year TLB consisting of a €629m tranche and a £224m tranche. The financing backs Astorg’s majority stake acquisition, which will see existing owner CVC reinvest. The deal values Corialis in the €1.6-1.7bn region, according to Les Echos, representing an EBITDA multiple of around 11x.

The rule of B3

The steady stream of B3 paper continued to flow this week, following the closing of B3 names Unit4 and Lonza

Two such loans are currently being marketed, the first of which is Duravant. The Warburg Pincus-backed factory machinery manufacturer won the approval of some buysiders on the basis of its strong product diversification and Covid-19 resilience. Pricing tightened on its €473.5m seven-year TLB, to pay E+375 bps from E+400bp-425 bps at guidance. Pricing for its $175m dollar-denominated second-lien also tightened from L+725 bps at launch to pay L+650 bps. Financing will go towards the acquisition of poultry processing machinery manufacturer Foodmate, an acquisition that makes sense according to buysiders, in terms of customer and geographic diversification. Read our loan preview here.

Another B3-rated loan in the market this week is PACCOR Packaging. Following a swish new rebrand, the company has launched a €120m add-on term loan for acquisitions and to refinance drawings under a revolving credit facility, as well as for general corporate purposes, according to LPC.

The loan is fungible with an existing €317m, 2025 covenant-lite term loan B that was raised in 2018 as part of a wider €437m senior and junior loan financing to back its buyout by Lindsay Goldberg. The original loan closed to pay E+450 bps with a 0% floor, which is where the add-on is guided to pay. The add-on is also offered at 98.0-98.5 OID.

High Yield Secondary

Across HY this week, instruments traded flat; 48% +0.26 pts | 49% -0.24 pts. Across Industries, Industrials (+0.16 pts) and Real Estate (+0.14 pts) tracked the strongest gains, while Healthcare continued its normalization, with some added single name movement (-0.43 pts, average price 103.5).

Within Healthcare, Bausch Health Companies (Valeant) traded an average -1.8 pt loss on the week. The group is looking at a potential spinoff of its eyecare business, which led to outlook downgrades from Fitch (B, Negative) and S&P (B+, Negative), and credit negative opinion from Moody’s (B2, Stable). On Wednesday, Bausch Health also announced it would reduce debt by $100m, funded by cash from operations.

For new primary issuance this year (excluding dollars), around 20% are now trading below the reoffer. Several new deals have shared the same fate, with Standard Profil2026s down around -4 pts, and Lonza Specialty Ingredients EUR 2029s -1.5 pts. Bloomberg cites hedge fund shorts as a potential culprit, who are adapting to fears of rising interest rates and high bond valuations. 

Meanwhile, the iTraxx European Crossover was today quoted at 254 bps, a touch outside 249 bps seen last week. In European domiciled HY credit fund flows, Global funds saw outflows (-$157m), while Euro (+$104m) and in particular US (+$225m) funds saw healthy inflows.

Leverage Loans Secondary

Leveraged loans secondary data remained calm this week, with a marginal average increase of 0.03 pts. Energy and IT showed slight declines, while all other sectors traded marginally upwards.