LevFin Wrap

Porta-bull packaging and drive-by's in electric week for High Yield

By Huw Simpson | huw@9fin.com

With festivities fast approaching, issuers are keen to get out and print while spreads hit post covid lows and flush investors look to bag last minute deals. We’ve tracked six new offerings this week, including the return of floating rate debt - we’ve seen just €5.3bn of Senior Secured FRNs this year - this week’s additions mark around a sixth of secured floating issuance volumes YTD.

Relief as a Risky Package Delivered

On Monday, IMA (Industria Macchine Automatiche) pulled the trigger on new HY notes to help fund BC Partners’ acquisition stake in the packaging machinery manufacturer. In addition, the cash equity contribution will be supported by up to €310m PIK Notes, to be secured on share pledges and issued outside the restricted group.

Perhaps to be expected on a sponsored buyout, the deal came with a suite of aggressive features, not limited to; uncapped EBITDA add backs, available RP Capacity concept, J-Crew style value transfers, room for future 2nd Lien and Subordinated debt, and unusually, portability well above opening leverage (5.25x vs. 4.5x opening). There were also rumblings over the call schedule optionality afforded to the issuer, with just two years cover on the fixed notes.

Although the call schedule remained unchanged at pricing, a concession was made on portability, set back to opening leverage - for a short history on the development of portability in HY, take a read through our recent twitter thread.

The €1,250m debut was initially structured with €800m 7NC2 SSNs and €450m 7NC1 SS FRNs, before gaining a small €30m upsize on the SSNs. Final pricing came at 3.75% on the fixed notes, and E+400 bps for the FRNs (99.75 OID), inside IPTs of low 4s for both tranches.

Fewer Nuisance Calls

Debt collector Encore Capital was also knocking on the door, back again to redeem a portion of Cabot Financials €400m SS FRNs due 2024, with fresh 7NC1 €275m SS FRNs due 2027 (B3/BB+). Yields in the 4.625% area (inclusive of 99-99.5 OID) were updated on Tuesday to E+4.25%-4.375% (OID 99) after an initial upsize to €400m. Another upsize brought the final deal size to €415m, pricing at E+425 bps (99 OID), shaving off some margin premium in return for a boosted NC2 schedule.

JV Going Dutch On The Greens

Dutch Telco VodafoneZiggo, formed as the 50:50 JV between Liberty Global and Vodafone, announced its debut green bond on Monday. Structured as Vendor Financing Notes, the company offered the €600m 8NC3 Notes to refinance the existing €600m VFNs due 2024, pushing out the maturity by five years (B2/B-/B-). Pricing same-day at 2.875% (inside PT in the 3% area), a leverage neutral €100m upsize will replace bank financing lines.

As part of the ‘Green’ criteria, the group intends to use an amount equal to the net proceeds to finance new or existing Eligible Green Projects, as set out in the Green Bond Framework. Categories include renewable energy, energy efficiency, clean transportation, and green buildings.

Elsewhere, Ford priced a chunky Sterling tranche through its EMTN programme, with the 3.5Y £750m 2.75% Senior Notes tightening from IPTs of 3.125-3.250%, final books were at £2bn (Ba2/BB+/BB+).

Pouncing on FCF Momentum

Jaguar Land Rover was also in the mix this week, tempting further dollar demand with $500m in Senior Notes due 2028 (B/B). The group last approached the market in early October for $700m in SUNs, pricing a 5Y tenor at 7.75% - these have since traded strongly - up to 109 before the announcement. This time however, the longer dated 2028s came in with IPTs in the low 6s, despite a ticking clock on seemingly ill-fated Brexit negotiations. The drive-by upsized to $650m and landed a 5.875% coupon same-day.

As Fitch reports, Covid-related production risks have reduced, with free cash flow Apr-Sep better than expected (-£1.2bn), and even turned positive this quarter (£463m). Danger still looms however in the mirrors with tightening emissions regulation, Brexit disruption and WTO-related tariffs on exports.

Closing out a busy start to the week, UK-listed electricity generator Contour Global announced a series of investor calls for €710m of new Senior Secured Notes (BB+/BB). The firm intends to use proceeds from the offering to redeem its €450m 2023s, and part fund the acquisition of Western Generation (twelve contracted power plants in the US and Trinidad and Tobago). With covenants substantially similar to the 2025s, we noted the interesting lack of limitations on Liens and Indebtedness for Project Finance Subsidiaries, and portability retained under a rare service charge ratio. The deal priced Thursday across two tranches, with the 5Y €410m coming at 2.75%, and the longer dated 7Y €300m at 3.125%.

Secondary

In Secondary, we’ve continued to see gains built on recent positive momentum, with an average increase of +0.25 pts for the week (64% +0.59 pts| 34% -0.38 pts). Sectors worst affected by the pandemic again saw the greatest upswing, with Energy up +0.74 pts, and Industrials +0.49 pts. It was the same story in reverse, as Consumer Staples (+0.03 pts) and Healthcare (+0.12 pts) saw the smallest benefit.

Spreads pushed back out this week, with the 5Y iTraxx Crossover hitting 258 bps today; the index was quoted at 234 bps last Friday, and 265 bps the week before. This is however all relative, and needless to say the near year low has encouraged many issuers to enter the market now rather than wait until the new year.