LevFin Wrap

Dry January to be drowned in riotous issuance, Trumping New Year Blues

By Huw Simpson | huw@9fin.com

In a disappointing start to the year, several factors held back all but one sober HY issuer. Brexit jitters, Spain’s Los Reyes Magos, and a surprise storming of Capitol Hill would have been strong traditional causes for pause in Europe’s raciest credit market; but given the late burst of traction into the holidays, many hope for more at the 2021 première. 

Build ‘em up, knock ‘em down 

Offering €1.5bn in dual tranche 5Y/8Y Senior Notes, sole GloCo J.P. Morgan opened European HY for 2021 on Wednesday, whetting appetites with a sensible German REIT. Adler Group, formed through a ‘reverse triangular merger’ of ADOAdler, and Consus Real Estate, is set on diversifying the group away from Berlin, to ownership of a broader €11.4bn portfolio stretching across the country.

Tracking good form seen before the holiday break, demand poured in across both tranches, with nearly €4bn on the final books. Weighted slightly towards the longer tenor, final sizes settled at €700m for the 5Ys and €800m for the 8Ys.

As you might expect, wide initial price thoughts were trimmed in bookbuilding, with Thursday’s pricing cutting 50 bps (from the tight end of IPTs) to offer respective yields of 2.125% and 2.5%. The Notes were offered with slight discounts to par, meaning coupons of 1.875% and 2.25%. 

Further evidence of an agreeable issuer environment can be seen in the absence of a NIP. We tracked fair value on the five year Notes at 1.98%, but other sources quoted a more generous 2.25% - suggesting little premium for the first new issuance of the year.

Capital structure break-in by Verisure sponsor

Verisure re-opened HY back in April, and on Wednesday pulled the same trick for Europe’s Leverage Loan market - offering €2bn in new Term Loans, along with a new upsized €700m RCF. As well as the loans, €1.15bn in Senior Secured and €1.27bn in Senior Unsecured Notes should follow early next week - with proceeds helping to fund a monster €1.6bn dividend

A 9fin deal prediction that came true, we also published a new Altice deal prediction, as we anticipate the refinancing of ~€11bn in debt at SFR and International levels in Q1 or Q2 2021.

S&P assigned a ‘B’ rating to the Secured debt, with the Unsecured two notches below at ‘CCC+’. The transaction will of course boost leverage, and the agency believes any continued growth could be used for ‘further shareholder remuneration rather than leverage reduction’, constraining the rating upside. According to Moody’s, Verisure now carries a more than €14bn EV, more than tripling its valuation since Hellman & Friedman’s takeover from Bain Capital in 2015.

Price talk on the seven year TLB emerged today, guided at E+375-400bp with OID of 99.0-99.5 (B1/B).

Other jumbo deals in the pipeline include INEOS Styrolutions $5bn acquisition of BP’s aromatics and acetyls business, and the £6.8bn Asda Issa Brothers / TDR takeover.

Closing out a faintly muted week, on Friday Stark Group welcomed CVC as its new owner, with Fund VII acquiring 100% of the building materials distributor from Lone Star. The firm's outstanding €250m 5% Senior Secured Notes are due 2024, and carry portability at 4.0x.  According to sources, current net leverage is estimated at 4.7x, meaning a 101 change of control put is expected, in line with today’s pricing - quoted at 99/101.5. The transaction is expected to close in Q2 2021.

Secondary

While ‘bad news is good news’ helped usher in the year with stock markets trading strongly this week, HY Secondary was more pragmatic, closing down -0.03 pts (44% +0.57 pts | 53% -0.53 pts). 

Energy (+0.70 pts) and Industrials (+0.23 pts) saw the greatest gains, with Consumer Staples (-0.37 pts) and Healthcare (-0.35 pts) trading off somewhat. By rating, CCC names outperformed +0.64 pts, with AMC’s2025s and EnQuest2022s  up 6pts into the mid 70s, with Cision2028s also tracking a 3pts gain to settle around par. Double BB and Unrated names traded flat (-0.04 pts), while Single Bs slid marginally (-0.10 pts).

As much of Europe slides back into lockdown, renewed hits to sales volumes should direct further attention to firms' financial soundness. However we continue to see ‘fully valued’ markets, in spite of the distinctly challenging global macroeconomic environment.

While Consumer Discretionary tracked a -0.21 pts fall this week, the likes of Burger King(2023s -1.4 pts), Pure Gym (2025s -1.2 pts), NH Hotels (2023s -1.2 pts), Travelodge(2025s -0.5 pts), and other similarly exposed names seemed impressive in their resilience.

Stonegate Pubs (arguably the best timed transaction of 2020) conceded little to news of a new UK wide lockdown on Monday, even as new rules forbade the esteemed ‘takeaway pint’. The 2025 EUR FRNs may still lie in the mid-90s, but the GBP SSNs are conspicuously quoted above par.

Elsewhere, the iTraxx Europe Crossover was quoted at +246 bps on Friday, tightening a little from Monday’s +249 bps. High yield continues to experience inflows (for the 9th week running), and although the majority of this movement has come into the US of late - European HY retail flows were up $418m (+0.1%) YTD.