LevFin Wrap

ASDA Issa top of Sterling Shopping Lists as Repricing Rush Rages on

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

Conclusion of Asda’s blockbuster LBO, a HY return for lockdown winner Iceland, and new super long-dated Telco issuance from Cellnex mark the latest big moves in a Primary market at the height of its game.

High Yield Primary - Fresh or Frozen?

Pricing for Asda’s megadeal emerged on Wednesday, with the £2.25bn SSNs offering 3.25% (IPT 3.5% area, Ba2/BB), and the £500m SUNs a very slight premium at 4.00% (IPTs 4.5% area, B1/B). Even with the usual suspicion of ‘fluffy’ books, demand for the Notes was monstrous, over £8.25bn for the £2.75bn transaction, pushing price on the open well above par - both tranches were recently bid around 101. 

Last week we suggested that the record breaking tranche would ‘probe the scale of demand for Sterling paper’...we now have a definitive answer - demand is most certainly there, a sizable portion of which probably stems from orders outside the traditional GBP HY investor base.

In European HY, concurrent offerings of SSNs and SUNs debt have typically offered a 200 bps premium for the unsecureds (interquartile 160-250 bps). This makes Asda’s 75 bps premium remarkable, and places it as the third tightest we’ve tracked - just behind VodafoneZiggo USD 2016s (50 bps), and UPC EUR 2017s (25 bps). For reference, last week's Kloeckner Pentaplast offering came with a more traditional 225 bps spread. 

Of course a few other factors should be considered to directly compare these deals, including ratings (Asda subs had B rating vs. more typical CCC), tenor mismatches (SUNs will almost always be ‘temporally subordinated’) and relative leverage levels for each security package, but assuming all else being equal, matched currency pairs have shown the following trend:

Hard on the coattails of Asda, Iceland had its own run at the GBP market with £250m in Senior Secured Notes due 2028, announced Wednesday (B2/B/B+). Covenants for the deal have upgraded on the 2017 offering, adding a starter CNI basket, new grower amounts and uncapped EBITDA add backs with no time limit. On the creditor-friendly side, a J-Crew blocker was inserted to restrict leakage of material IP rights. 

A well timed deal, much of the Sterling demand which poured into the group’s peer earlier in the week was well suited to Iceland. IPTs of Mid-High 4s cut back to price talk in the 4.5% area, with final pricing settling at 4.375% on Friday.

Iceland hosts an interesting - our story - section on the corporate website detailing previous struggles with management, including the ‘Dark Ages 2001-2005’, and an odd rowing metaphor entitled ‘Beware management consultants’ - both are well worth reading in full. The company has since seen a turnaround, and benefited from increased turnover of +20% in the 40 weeks to 01-Jan-2021, with EBITDA up £41m YoY to match.

For those investors looking at the relative merits of the two British issuers, Asda offers more bang for your leverage than Iceland (135 bps vs. 102 bps), with the gap only narrowing slightly if you remove synergies and cost savings from the former's marketed EBITDA.

Keeping to a theme of outsized offerings, Spanish crossover Cellnex announced investor calls for a multi-tranche EUR Senior Notes on Monday, following the €7bn rights offering publicized last week to help fund the acquisition of SFR’s Hivory Towers. On Tuesday the group announced the successful completion of the issuance, pricing €500m 0.75% SUNs due 2026€750m 1.25% SUNs due 2029, and a chunky long dated €1,250m 2% SUNs due 2033. Italian infrastructure company Atlantia also joined the mix, issuing its debut HY bonds (Ba3/BB-/BB). Initially marketed as €750m-€1,000m, the SUNs settled at the larger size on books in excess of €1.65bn, with a 1.875% handle and slight OID of 99.13.

Elsewhere, pulp and paper company Norske Skog announced plans for a 5-year euro offering of SSNs, proceeds from which would refinance the existing 2022 FRNs, as part of a wider capitalisation process to finance strategic investments.

In other news

Platinum Equity abandoned its takeover of British pub operator Marston’s, as its revised 105 pence offer was rejected. A Bain Capital-Cinven consortium won a competitive takeover bid process for Lonza’s Specialty Ingredients unit, announcing the $4.7bn purchase on 08-Feb. Around $3.4bn of debt is expected for the debut LBO financing, boosting supply of junk debt in the market. And in another 9fin deal predictionCarnivaloffered and upsized a further $3.5bn SUNs, this time paying just 5.75% - a far cry from the 10+% coupons offered in the summer on its 1st and 2nd Lien Secured debt.

Golden Eggs

This week we also followed a quarterly 9fin tradition - inspecting Softbank’slatest earnings presentation. Bizarre as ever, this iteration appears to revolve around the production of turbocharged golden eggs - a welcome throwback to 2014’s ‘goose premium’.  

The group has always shown strong form in intriguing the market, highlighted recently in the now famous FT article “Jesus Christ was also misunderstood, Masayoshi Son tells investors”, which led to an all-time favourite comment:

Loans Primary - Repricing Rush Rages on

“If you’re a performing credit and you’ve come back to pre-Covid levels, then it’s only a matter of time until you reprice,” one buysider told 9fin. And indeed that seems to be the case: at least three companies unveiling new repricing efforts this week.

In the US, BMC Software is looking to shave up to 50 bps of its $3.234bn TLB to L+375-400 bps and at least 50bps off its E+475 bps €911m TLB to E+400-425 bps. 

German research publisher Springer Nature cut 25 bps off both its €2.154bnand $868bn TLBs to E+300bps and L+325bps, as well as 25bps off its USD floor to 0.75%. The buysider expects “at least'' another 20 deals to come to market in the coming weeks. 

British pharma firm Atnahs, meanwhile, seeks to slice its E+500bps €614m TLB down to E+425-450 bps.

Recruitment agency House of HR tightened its €500m TLB to E+375 bps down from 425 bps, offering up a 12.5bps consent fee to existing lenders, one buyside source said. Two buyside sources were keen on the firm, which they say has outperformed peers Michael Page, Randstad and Adecco through the pandemic due to their focus on high skilled labour: 48% of House of HR’s EBITDA comes from engineering and consulting placements, with 41% coming from so-called specialised staffing. “We agreed to it,” said the first buysider. “There aren’t too many homes to put your money right now.”

New loans announced this week came from Swiss pharmaceutical company spin-out Lonza Specialty Ingredients, German container shipping company Hapag-Lloyd and Dutch medical supplier Mediq

Lonza Specialty Ingredients unit's yet-unspecified jumbo CHF 3bn ($3.356bn) package of leveraged loans and HY bonds will back its acquisition by Bain Capital and Cinven, while Mediq’s seven-year €500m TLB helps pay for its purchase by Advent and refinance existing debt. 

Hapag-Lloyd, meanwhile, continues 2021’s green trend by structuring around the LMA’s Green Loan Principles for its 12-year $417m syndicated loan. “Fuel efficiency improvements are always going to be an easy win on the green side,” a third buysider mused. “We expect it to become especially popular on the transportation side.”

Both Asda and Stark Group went green this week too. 

One buyside source says the British supermarket chain’s €845m TLB has a 5 bps ESG margin ratchet that only requires Asda to provide an ESG report that beats its previous ones. “It’s bordering on meaningless,” he complained. 

Nordic buildings material firm Stark Group also reached for an ESG margin ratchet, of 7.5 bps, dependent on the firm cooling annual greenhouse gas emissions by 4.5%. Its B2/B-rated €1.345bn TLB is proffered at E+375 bps and 99.5 OID.

Potential ESG pandering aside, the UK supermarket group achieved the tightest pricing of the year so far, coming in at E+275 bps for its €845m TLB after it inflated the offering by a modest €5m. 

Pricing chatter for Luxembourg-based fund administration provider Alter Domus is the flavour of the month: E+350-375 bps on its €400m TLB and L+375bp-400bp and on its $245m TLB. Real estate service provider Apleona’sseven-year TLB also priced in at a modest E+350 bps this week after upping the offering €25m to €765m after reducing the second lien, coming in at par after guiding at 99.5 OID.

“With pricing going how it is, I’m not sure how pleased any firm is going to be with [paying] a 400-plus margin,” a fourth buysider said this week. Bad news for these companies, then. 

Pricing on retail software firm CDK International’s seven-year €515m TLB is guiding wide at E+425-450 bps with OID of 98.5-99.0, as is French higher education firm AD Education’s €207.5m TLB at E+425 bps. Bakery ingredients producer CSM Ingredientsfinalised its €245m TLB at a somewhat eyebrow raising E+500 bps and an OID of 97. 

High Yield - Secondary

EHY Secondary traded up slightly on the week, with instruments marking gains of +0.20 pts (60% +0.50 pts | 30% -0.28 pts). By industry, Energy tops the list (+1.02 pts) thanks to large gains by Tullow, with Industrials (+0.38 pts) and Real Estate / Financials also seeing modest traction (+0.26 pts). At the lower end, we see Healthcare (+0.05 pts) and Communication Services (-0.06 pts). By ratings, Single B saw the greatest returns, averaging +0.28 pts, with Double BB a step back at +0.16 pts, and Triple CCC names mostly flat (+0.05 pts).

iTraxx Europe Crossover was quoted at 244 bps on Friday, moving just outside the 240 bps level seen last week. In fund flows, European domiciled HY credit funds reversed last week's outflows (+$102m), and US High Yield likewise (+$465m), meanwhile Global High Yield saw further but stemmed outflows (-$393m).

Leveraged Loans - Secondary - Buysiders sifting for opportunities

Secondary loan trading prices in 9fin’s database skewed positively this week. The largest downward movements weren’t particularly notable, coming from AS Adventure’s E+500 £200m TLB (-1.3 pts) and three events company Comexposium instruments (-0.8 pts each). “We’re in a frustrating holding period,” said one secondary trader. Another described themselves as “down in the mud” “digging” for opportunities where debt pricing had slid – “with not too much success.”

On the flip side, it was another buoyant week for ventilation manufacturer Flakt Woods Group’s €300m TLB (+2.2 pts), likely riding the high of oil prices, one buysider speculated. 

Elsewhere, a slight boost for UK ticketing company Viagogo’s E+350 bps €452m TLB (+1.3 pts) to 95.6 comes despite news it must sell off recently acquired StubHub’s non-US business. German publishers Axel Springer also enjoyed a quiet bump (+1.2 pts) on its 3M E+500 bps €725m TLB.