LevFin Wrap

Looking Fly, or Lipstick on a Pig?

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

This is an abridged version - as there was so much activity this week - it breached email limits

High Yield: Primary

Tempted by excess liquidity, a grand total of eleven new issues swept into High Yield this week, offering hearty supply. Nearly €7bn was priced for settlement in the week beginning 22nd March, bringing cumulative issuance this year to more than €35bn (excluding USD).

Early on Monday, French property management and transaction company Foncia was out with the bond portion of its divi-refi, marketing €400m in Senior Secured Notes due 2028 (B2/B/B+). There is also an unsecured leg - €250m Senior Notes due 2029 - to be issued via the ‘Flamingo Lux II’ parent entity (Caa1/CCC+/CCC+).

As outlined in our Friday Workout, Foncia’s legals attracted a lot of attention. Some key highlights include; significant scope for value leakage from RP and PI (~4.0x EBITDA available on day one), novel flexibility for calculation of covenant capacities linked to ‘no worse’ tests, and an odd toothless ‘J-Crew style’ clause. Read out full QuickTake here.

Terms finalised on Friday, with the SSNs set at 3.375% (within price talk of 3.25-3.50%), and the SUNs at 5.00%, inside price talk in the 5.25% area. No changes were made to the covenant package.

Green Traction

Across the border, it was a very different story for Spanish real estate developer Via Célere, who announced a more staid debut HY offering on Monday, with €300m in fresh green Senior Secured Notes due 2026 (B+/BB). Clustered around the nation’s largest cities, the group operates in three main segments; land management, ‘build-to-rent’ and ‘build-to-sell’ developments. The legals are straightforward, and contain few surprises.

Proceeds from the notes will go toward construction of energy efficient ‘Green Buildings’, specifically those which achieve EPC labels A, B, or C, and are therefore in the top 15% of most energy efficient comparable buildings. The framework can be read in full here.

Although comparables suggested pricing on new five-year Notes at around 5%, IPTs in the high 5s to 6% perhaps reflected the ‘inherent volatility and cyclicality’ of the development industry in Spain’s highly fragmented housing market. Pricing finalised on Thursday, cutting through official price talk of 5.5-5.75% to land at 5.25%.

Another recent convert, automotive equipment supplier Faurecia offered inaugural green bonds of its own under the Green Bond Framework established in March. The framework outlines the group’s aim to develop and produce hydrogen fuel cells for use in vehicles, mainly carried out through Symbio - a joint venture with Michelin.

The no-grow €400m Senior Notes due 2029 (Ba2/BB/BB+) priced at par for a coupon of 2.375%, a slight premium over the shorter dated €190m 2.375% Senior Notes private placement secured in January, which yielded 2.25% at issuance.


On Tuesday, Italian gambling company Gamenet announced €525m in Senior Secured Notes due 2025 (B1/B), to be used alongside a €225m equity injection from Apollo for the purchase of Lottomatica - IGT’s B2C online, sports betting and gaming machines business.

Unsurprisingly, Covenants on the deal are identical to the existing 2025s. As a reminder, these include backdoor secured debt or restricted payment flexibility via a novel use of the contribution indebtedness definition, portability set below opening leverage (2.9x vs. 4.8x opening - stepping down to 2.4x after 24-months), and Restricted Investments not subject to typical tests of ‘no Default / EoD / ability to incur €1 debt’.

The deal upsized to €575m during the bookbuild, and final pricing shaved 12.5bps off the initial talk, coming in at 5.125%. Maturities and call dates on the new notes will conform to the existing 6.25% SSNs due 2025, meaning the new 4.25Y Notes come with just 1.25Y of call protection.  

Gamenet is acquiring Lottomatica from IGT for €950m, which will expand Gamenet’s scale, brand and positioning in the Italian gaming market, according to S&P. The initial upfront cost of €750m will be funded by the new notes and equity, while remaining costs will be paid in two installments, €100m by Dec-2021 and €125m by Sep-2022.

Shooting craps with the Graceland King

Swiftly following Gamenet, International Game Technology (IGT) launched a benchmark offering of USD Notes due 2026 (Ba3/BB). Along with drawings under senior RCF, the group will use proceeds from the offering to redeem the 6.25% 2022 Notes in full. The $750m of new Senior Secured Notes priced same-day, offering a 4.125% coupon.

The second largest gaming group in European HY, IGT’s Lottomatica disposal boosts liquidity, and puts adjusted cash for the group at a whopping $1.8bn (plus $1.5bn undrawn capacity under its RCFs). After amending its financial covenants, the group is now subject to a minimum liquidity covenant of $500m through to June 2021. 

We highlight some interesting ESG considerations in our Credit QuickTake, not least the arrest of four Lottomatica employees in October 2020 in connection with a €24m fraud, and a €0.5m penalty paid for firing an employee who reported the company to the SEC for financial statement distortion.

On Wednesday, IGT announced an exclusive licencing deal with Authentic Brands Group for the rights to develop Elis Presley-themed lottery games in the US and Canada -  "Elvis has a special way of continuing to delight fans and we're excited to see how people react to this engaging and interactive format."

Next up, IAG. The parent of British Airways, Iberia, Aer Lingus, Vueling and Level announced the launch of €1.2bn Senior Notes across four and eight-year tranches (B1/BB). The deal marks the company’s first as a HY issuer after downgrades in 2020. Proceeds from the offering will be used to strengthen IAG’s balance sheet and liquidity position, helping the group withstand a more prolonged downturn in air travel.

Final tranche allocations nudged toward the longer tenor, landing at €500m 2.75% and €700m 3.75% respectively. At launch, combined books were in excess of €5.25bn, weighted to the eight years.

S&P reports new covid variants, coupled with the EU’s slow vaccination rollout has led to a weaker airline rebound than previously expected - 2021 will be “another very difficult year for IAG”. The group estimates current operating cash burn of around €185m a week, with Moody’s estimating that the new issuance will provide liquidity cover for net cash burn through to the second quarter of 2022.

Stressed borrowers

Two stressed borrowers also made use of the HY debt market this week, locking in refinancings and offering punchy coupons. You can read our Deep Dive analyses on CGG and Douglas here. 

CGG, who provide geophysical services (seismic testing, equipment and image processing) to the energy industry, announced on Monday an offering of €1.2bn (equiv.) in Senior Secured Notes due 2027 (B3/CCC+/B). Tranche splits settled at €585m and $500m, and final pricing came at the tight end of IPTs, landing on guidance for 7.75% / 8.75% respectively. 

The company saw Multi-Client segment orders drop by around 30% in FY20 (down 50% in Q2/Q3) as the pandemic hit and oil prices crashed. Most clients are reorganising their portfolios and only critical projects are moving forward, said management in a recent investor call. The Geoscience business was more resilient due to its backlog leading into the crisis, seeing revenues falling ‘just’ 15% year-on-year. CGG reinforced its market share during the year to 41% and less than 25% of revenues are exposed to exploration. 

Looking fly, or lipstick on a pig?

German beauty retailer Douglas is also in-market, with the bond leg of its refinancing. The package includes €1,000m in Senior Secured Notes due Mar-2026 (B3), and €300m pay-if-you-want PIK Notes, due Sep-2026 (Caa2).

As discussed in our Friday Workout, the deal includes no fewer than five different EBITDA measures, spread across 4-5 pages of reconciliations and footnotes, explaining the various adjustments. The ‘Management Adjusted EBITDA’ reconciles from Dec-2019 figures, projecting 2020 figures based on a 100.2% net sales recovery rate, and adjusting for the estimated FY20/21 cost structure (-€72.8m). From there it further adjusts on the store optimisation programme (+€99.6m), and further run rating (+€19.8m).

This puts the figure at some distance from the comparable pre-IFRS 16 figure of €111.9m.

For covenant purposes (including ratios), the Issuer has set a deemed EBITDA for each quarterly period. This is unusual, but reminiscent of Covid-19 waivers we saw in 2020 that set covenant tests relative to a pre-Covid-19 EBITDA proxy. Our full Legals QuickTake can be read here.

In other news

  • Just five days after PPC successfully priced its sustainability linked bond, it emerged that the European Commission has opened formal proceedings to investigate PPC’s past activities on the Greek wholesale market (associated risk factors were present in the preliminary offering memorandum).

  • Raffinerie Heide hints at a Green deal in the upcoming refinancing of its €250m Senior Secured Notes due 2022.

  • Reuters reportsVodafone is set to reap up to €2.3bn from the IPO of its infrastructure unit Vantage Towers.

Leveraged Loans Primary: Sponsor recap rager, B3 blowout

The primary loan market was abuzz this week. A bog of repricings and refinancing persists amid leveraged loan undersupply, with two deals (Thor Industries and United Petfood) reverse flexing their pricing and three sponsors (Partners Group, Lone Star andHg Capital) enjoying a dividend recap treat this week.

B3/B- credits also flourished, with $6.75bn-equivalent now in market between German cosmetics firm Douglas, German buildings materials company Xella, British drugmaker Advanz Pharma and British data firm ION Markets. Somewhat market pariahs in recent years, buysiders have noted the resurgence of B3 credits over the past few weeks as investors sniff out returns to compensate for a flurry of sub-400 bps and even sub-300 bps deals in January and February.

Docs frail, leverage flying in Foncia divi recap

French real estate firm Foncia took commitments on its €1.275bn TLB guided at E+350 bps (B2/B, Moody’s/S&P) this week. The loan comes with a 0% floor and a 99.5 OID (B2/B, Moody’s/S&P), and a €437.5m RCF (B2/B, Moody’s/S&P) accompanies.

The company – a lease management, real estate brokerage and property management firm – is funnelling a €475m shareholder dividend and refinancing of existing senior credit facilities with the deal. The Partners Group-owned firm is also raising €400m of senior secured debt and €250 of junior unsecured debt (CCC+, S&P).

The recap, which pushed Moody’s to change its outlook from stable to negative, would have happened last year if not for Covid, one buyside source claimed. The rating agency shot its projected adjusted leverage to an eye watering 9.0x as a result of the deal, though expects it to settle back down to 6.5x over the next 12 to 18 months. “The leverage is a concern point, yes, but at the end of the day we’re comfortable that the sponsor will be supportive,” a second buysider, themselves putting total leverage at 7.82x.

Docs were “certainly aggressive”, the buysider went on, pointing out a proposed three step-down margin ratchet at 0.25x deleveraging, rather than more standard 0.50x. Look to 9fin’s Legal QuickTake for a breakdown of covenants on the bonds and request one on the loans. A Credit QuickTake is available here.

Despite grumblings over weak docs, a third buysider was sanguine on the deal. They described the firm as largely sheltered from Covid as it manages groups of properties on a contract basis, with about 60% of revenue stemming from recurring revenues. While activities shuttered in the first French lockdown, they swiftly resumed, and despite being cash generative, the firm also won government support – “so this is one I’m definitely comfortable with.”

An existing lender since 2016, they also highlighted its market position: number one in the French property services market, with 1,793 properties in France – the second largest market player, Nexity, has just 876 – on the back of 220 bolt-on acquisitions since 2016.

Two more pay-outs: Xella and team.blue

Two more companies joined the dividend recap fun this week. One, buildings and insulation material firm Xella, is out with a €1.945bn 2028 TLB (B3, Moody’s), guiding at E+ 425 bps and 99.5 OID. Funds will also refinance existing debt together with €258m of cash. A potential €200m in subordinated Holdco PIK loans could also come along. S&P forecasts this recap will push Xella’s adjusted leverage up 1.5x to around 9.0x including preferred equity certificates (PEC), lowering its issuer rating from B+ to B.

The €710m pay-out follows just weeks after another Lone Star buildings business, Edilians (formerly Imerys Roofing), served up its own €110m divi recap to the sponsor. Construction companies have been attractive to buysiders in recent months due to their relative Covid resilience, however some buysiders have expressed concern around shareholder pay-outs in a cyclic industry.

Elsewhere, web hosting services provider team.blue proffered a €340m dividend recap in its €925m leveraged loan debut. An €875m TLB was topped up by a €50m delayed draw facility. Alongside is a €225m second lien loan and €150m of 2029 Holdco PIK loans issued outside the restricted group.

Buysiders were wary of the Belgian firm’s split three-way ownership (equal between Hg Capital, CEO onas Dhaenens and TransIP founder Ali Niknam), preferring a majority owner sponsor and doubtful about how the firm could remain competitive in a high margin, easily entered industry. However, in a market still mired in undersupply, the loan was upped €50m on the back of hungry investors. Nonetheless, buysiders pushed back against a three step-down 0.25x margin ratchet here, wrestling it down to 0.5x and two step downs. 9fin’s Loan preview and Loan Legal QuickTake are available here and here.

Other new deals this week:

  • Venice-based Casa Vinicola Botter, which produces and exports wine, is out with a €160m senior TLB, alongside an RCF, to back its acquisition by Italian PE firm Clessidra. The initially family-owned firm poured out €320m revenues in 2020, 6% up for 2019 as locked-down populations dealt with the pandemic from the comfort of their own homes.

  • ION Markets is following in the footsteps of ION Corporates and ION Analytics with a whopping $3bn-equivalent refinancing package (B3/B, Moody’s/S&P) after initial attempts stuttered to a halt last year. The seven-year deal comprises a $1.8bn tranche guided at L+475 bps and 99.5 OID and a €1.5bn tranche lower at E+425 bps and 99.75 OID.

  • German cosmetics retailer Douglas is putting together a $1.080bn TLB (B3/B/B-, Moody’s/S&P/Fitch) in part of a wider refinancing package to push out 2022 maturities. Guidance for the CVC-owned firm is out at a blushing E+500 bps and 99 OID. Enjoy a 9fin Credit QuickTake here.

  • Swedish pharmaceuticals firm Recipharm’s €1.115bn 2028 TLB (B1/B+, Moody’s/Fitch) is in market, guided to pay E+350-375 bps, with a 0% floor at 99.5 OID. Besides the €1.115bn TLB, a £228m second lien, SEK14.4bn of equity and SEK6bn of rolled equity will fund an acquisition by EQT and refinancing existing debt. EQT snapped equally acquisitive Recipharm up in a $2.85bn (SEK 23.6bn) deal announced last December – a price that one analyst told Bloomberg looked low. Credit QuickTake here. Request a Legal QuickTake from loans@9fin.com.

  • Another repricing for Sweden’s Dellner, this time a 25 bps reduction on €240m TLB to E+375 bps and par, with a fungible €60m add-on alongside to repay on outstanding second lien loan. Dellner produces components for industrials including rail vehicles.