LevFin wrap

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

High Yield - Primary

Six new deals landed this week. Predominantly single B rated, with a wide range of uses - from straight refi’s to LBOs and dividend recapitalisations.

Wastepaper Wins

On Monday, recycling group Derichebourg (BB/BB) announced its acquisition financing for competitor Ecore Group (CCC+/B-), offering €300m Green Senior Notes due 2028. Alongside the new notes, €225m of cash (including ~€40m from Ecore) will fund the €519m purchase price and debt redemption. The combined group will enhance its domestic position in France, and will become the leading ferrous recycler in the country, covering around 30% of the market. After PT of 2.375-2.625%, final pricing arrived at 2.25% on Thursday.

Next, online payment processor Paysafe sailed through this week, offering $1,026m (equiv.) in Senior Secured Notes due 2029 as part of a broader refinancing which includes a term loan of the same size, and a new $305m RCF. Although nearly half of FY2020 revenues came from the US, the group is otherwise well geographically diversified, and sees positive growth dynamics from the deregulation of the US gaming market.

The group merged via Bill Foley’s Foley Trasimene Acquisition II SPAC, which completed on 30 March 2021, and was offered on the NYSE the following day. A boon to noteholders, an EV/EBITDA of 25.2x provides a very supportive 83% equity cushion. However, the covenant package was highly flexible, with a leverage-based Permitted Investments basket available day one, and featuring an unusual ‘no-worse’ prog. The docs also allow for the conversion of 2x RP capacity into debt, or investment capacity up to 1x RP.

Tranche sizes emerged on Thursday as $400m 4.00% SSNs and €435m 3.00% SSNs, both settling at the tight end of price talk (B1/B+). 

Another debutant in European HY, residential property maintenance group PHMlaunched €300m in Senior Secured Notes due 2026 (B2/B) - courtesy of Nordea and Pareto Securities. A leader in Finland’s fragmented market, the group holds ~18% share, and claims to be 4-5 times larger than its closest competitor. Owned by buy-and-build specialists Norvestor, the group went on an acquisition binge, scooping up 85 firms across the Nordics since 2015. In September 2020, PHM acquired all shares in key competitor Kotikatu, doubling in size.

Proceeds from the offering will refinance existing debt and pay a €70m dividend to shareholders. After price talk of 5.00-5.25%, revised price talk came at 4.75-5.00% (wpir), with the price set at 4.75%.

We also saw the launch of the €650m Senior Secured Notes portion of Philips Domestic Appliances LBO. Producing coffee machines and vacuum cleaners (among other products), Hillhouse Capital is acquiring the non-core unit for a total consideration of €3,851m (11.9x EBITDA), with an expected equity contribution of €2,326m (60%).

Legals on the deal were ‘Sponsor-favourable’, most notably with the ability to convert RP capacity into debt capacity, and a lack of default / EoD / Ratio Debt test for making Restricted Investments. There was also the addition of EBITDA add backs for negative financial impacts of COVID-19 and other such disasters.

Following an equal upsize in the TLB to €1,050m, the SSNs were downsized to €650m. IPT of Mid 3s turned to PT of 3.25-3.50%, with the final price at 3.125%.

Concealer, Fully Charged

Elsewhere, two reverse yankee issuers were out marketing benchmark euro Notes.

Battery manufacturer Energizer priced €650m 3.50% Senior Notes due 2029 (B2/B+), sliding inside IPTs of high 3s the group made chunky interest savings as it refinanced its €650m 4.625% Senior Notes due 2026. Battery demand had a welcome boost in 2020, as housebound consumers spent more time on their devices. As with many other lockdown winners, questions remain over if - or for how long - these tailwinds will last.

Cost pressures have however impacted the gross margin (lithium prices earlier this year spiked by 55%), with the total impact partly offset by reduced travel expenses. Happily, the group reports $38.7m in Covid-19 EBITDA cost add-backs for twelve months ended 31 March 2021.

Fellow american beauty Coty also returned, offering €500m in Senior Secured Notes due 2026 (B3/B). The beauty products manufacturer already placed $900m 5.00% SSNsin April this year, and the notes have traded well - up at 101.5 as of today (11th June). Publicly traded, German based investment firm JAB owns the remaining 60%. The group has been on a deleveraging run, selling off a 60% stake in Wella in Nov-2020, as it attempts to combat poor performance after lockdowns dried up demand for self-care products.

IPTs were sent out in the 4% area, with a €200m upsize and final pricing set at 3.875%.

In other news

  • After a long running dispute with the Italian Government, infrastructure group Atlantia has agreed to sell its toll road arm for €9.3bn. Investors include CDP, Blackstone, and Macquarie. 

  • Tesco and Carrefourend cost-cutting purchase alliance. Agreed in 2018, the plan had aimed to improve negotiating terms versus suppliers, but appears to have been ineffective. The alliance formally ends on 31-Dec-2021.

  • Trafigura is in talks for ~$1.5bn multi-tranche financing, possibly with sustainability-linked features.

  • The CEO of Heathrow is still upset over the government response to the ‘beleaguered and neglected travel industry’, asking for targeted compensation, including rates relief and furlough extension.

  • Citi / Deutsche Bank have sent out a save-the-date on a fixed rate note in the consumer industry, will investor calls set for Monday 14th.

Leveraged Loans - Primary

An exciting week for loans with the selection of sectors on show diverse enough to make most boardrooms jealous. Covid-resilient sectors such as food manufacturers, IT and healthcare made up the bulk of issuance, so, no surprises there, but mining and consumer discretionary also peeked their heads above the parapet, largely to a good reception. 

There is plenty of paper to peruse, with more than €8bn-equivalent in loans currently in syndication. For the second week and in a departure from the prevailing Q2 trend, B3-rated paper was scarce, with no such issuers currently in the market.

Pricing continued to be tight, with one buysider telling 9fin they were getting bored of loans paying E+350-375 bps. 

There’s no rest for the virtuous, as ESG margin ratchets and sustainability-linked loans continue to flood the market, despite increasing buysider apathy. Several buysiders have told 9fin they dislike seeing these types of ratchets, either because the buysiders feel the issuers should be making these commitments anyway, or that ratchets negatively affect buysiders’ economics, or because of concerns surrounding how the KPIs are monitored.

Plus-size

Loan sizes seem to be creeping up, with several issuers seen above the €1bn mark. 

UK payment-processor Paysafe (B+/B1) cashed in on a dual currency $1.026bn TLB as part of a wider refinancing after tapping out a $3.6bn post-SPAC equity feast. Buysiders saw this newly equity-fed firm as a quick yes, supported by long-term trends toward online payments and “blue chip” sponsors in CVC Capital Partners and Blackstone Group, as well as a long-term “switched-on” management team. Exposure to iGaming and a recent deal with Coinbase are further growth drivers for US expansion, reducing dependence on Emerging Markets. 

The  €435m TLB priced at the tight end at E+300 bps and par with 0% floor, from E+300-325bp and 99 at launch. The $628m tranche landed at L+275 bps and 99.75 with 0.5% floor, from initial guidance of L+300-325 bps and 99.5.

The euro-denominated tranche will still come with a 25 bps step down at 3.7x net leverage, which marks 0.5x of deleveraging, while the same step down was removed from the dollar tranche after pricing tightened during syndication.

Paysafe’s existing dollar- and euro-denominated TLBs, issued to back the acquisition of iPayment in 2018, priced at  L+350bp and E+325bp with floors of 1% and 0%, respectively. See our loan preview on Paysafe here.

French elderly care services company Colisee (B/B2) launched a €1.025bn loan to reprice a €875m TLB raised less than a year ago to back its buyout by EQT Infrastructure and CDPQ (Infrastructure). Both the €875m TLB and the €150m add-on are guided to pay E+375 bps, from an existing margin of E+400 bps.

A lender call will take place today, Friday 11 June, before commitments are due on 18 June.

With another chunky piece of issuance, Ardian's Dedalus is back in the market for a reprice of its debt facilities originally put in place 12 months ago, as well as a €85m add-on to partially fund recent acquisitions.

Commitments are due 14 June for the enlarged €1.005bn TLB. Last summer the borrower raised a €680m TLB backing the acquisition of Agfa's healthcare IT business in May. The loan priced at E+450bp and 97, from guidance of E+425-450bp and 97, followed swiftly by a €240m add-on which priced at 97.5.

Buysiders view the credit as stable, offering good fundamentals such as low customer churn and high recurring revenues; however, a recent data leak has caused governance concerns.

Data related to more than half a million French customers’ pregnancies, STD status and social security numbers were published on the dark web in January 2021, in a leak of “particularly significant magnitude and severity,” according to France’s privacy watchdog. See our loan preview here.

Risk and asset management software provider Solera has priced its multi-currency loan at the tight end of guidance. A €1.2bn TLB priced at E+400 bps with a 0% floor at 99.5 OID, from E+400-425 bps with a 99 OID at launch. A £300m TLB finalised flat at SONIA+525 bps, with the OID tightening by 0.25pts to 99.25 OID. Making up the final TLB of the package that will refinance existing debt and fund acquisitions, a $3.38bn term loan B priced at L+400 bps, down from L+400-425 bps with a 0.75% floor at 99 OID. All three tranches include 101 soft-call protection for six months and a 25bp margin ratchet if leverage drops below 4.5 times. They all amortise at 1% per annum.

Carve these names with pride?

Two carve-outs have spun on to the market this week. 

The €850m (upsized to €1,050m) TLB backing the Hillhouse Capital carve-out of Philips Domestic Appliances (PDA) was squeezed tighter with OID reverse-flexed to 99.75-100.0 from 99.5. Its margin has remained at E+350bp, with 0% floor and 101 soft call protection for six months. 

The business was marketed off LTM pro forma adjusted EBITDA of €323m, selling at an EV of €3,851m, giving an entry multiple of 11.9x. An additional €700m will go towards licensing of the Philips brand over the next 15-years, through which 90% of revenues are generated. 

Tightening occurred despite buysider concerns on the execution risk surrounding PDA’s complex carve-out from Phillips, which will see the former parent provide services such as HR, IT and finance functions for an interim period, as well as a repositioning to combat falling revenues in China. Commitments were due yesterday, Thursday 10th of June. See our loan preview here

The spin-out of Dutch specialty chemical group Nouryon's base chemicals unit Nobianis being backed with a €1.19bn five-year ESG-linked TLB. Proceeds will be used, alongside other secured debt, to reduce borrowings at Nouryon. The Nobian business represented 22% of Nouryon’s revenue and 26% of Nouryon’s adjusted EBITDA for FY2020. 

The transaction will see some of Nouryon’s subsidiaries that currently guarantee its senior notes and senior secured credit facilities be released from those guarantees. After the spin-out, which is expected to be completed by early third quarter, Nobian will remain under the ownership of Nouryon's equity owners Carlyle and GIC. Commitments are due by June 24.

Greta Juneberg

Nobian is not the only issuer keeping the ESG theme alive in leveraged loans this June. Issuers from around the globe are warming to the idea. Hailing from the mining sector, which has been conspicuously quiet on ESG, and in a first for Russia, potash producer Uralkali has signed a sustainability-linked loan facility. 

The $1.25bn five-year PXF was launched at $1bn and increased after raising more than $1.5bn in commitments. A total of 18 banks participated in the refi. The margin is L+190bp and the facility incorporates a pricing mechanism based on sustainability KPIs linked to ecological issues and company safety operations.

Pricing on Virgin Media Ireland's (B2/B+) €900m ESG-linked TLB has been guided at E+325-350 bps with OID guided at 99.50-99.75. Floor is 0% and soft call protection 101 for six-months.

The deal sees Virgin Media Ireland become a separate standalone credit pool, 100% owned by Swiss telecoms giant Liberty Global, a promising point for ratings agencies, which expected intended shareholder distributions paid for by this financing to stop should EBITDA deteriorate. 

Pricing will fluctuate based on four ESG-linked KPIs such as energy efficiency improvements and gas emission reductions, with the borrower paying a maximum of 15 bps and receiving a maximum discount of 7.5 bps.

Unrated outdoor sport surface maker Sport Group finished its race for a €370m ESG refi loan. The €300m TLB increased from €270m at launch, and closed to pay E+425 bps at the tight end of E+425-450 bps guidance. The TLB and a €70m RCF, which pays E+350 bps, will be used for general corporate purposes. The existing €192.2m TLB and US$57.9m TLB, both of which priced at E/L+400 bps, were issued in 2017.

Food for thought

In an already stuffed week for hungry buysiders, French food ingredient maker Solina(B2/B) launched a €567.5m ESG-linked term loan to back Astorg's acquisition of the company from Ardian, banking sources said.

The TLB is guided at E+375-400 bps with a 0% floor and 99.5 OID. The margin will also increase or decrease by up to 10 bps, depending on ESG KPIs. The loan is offered with a 101 soft call for six months. Commitments are due on June 17.

Frozen food company Nomad Foods (expected BB-/B1/BB) also guided pricing on its €553.2m term loan at E+275 bps. It will have a 0% floor and a 99.5 OID and is offered with 101 soft call protection for six months. 

Along with cash on balance and up to €750m of other senior secured debt, financing will repay existing debt and fund the acquisition of Fortenova Group's frozen food business for €615m on a debt-free and cast-free basis. The acquisition gives Nomad leading positions in CEE. Commitments are due 17 June.

This is not Nomad’s first oven ready meal when it comes to debt-financed acquisitions. In 2018, Nomad tapped the loan market for $300m to back the purchase of UK-based frozen food company Aunt Bessie's. That loan was in addition to its $660m term loan and €558m term loan raised as part of a repricing and add-on transaction in 2017.

Soon to be on the table in this sector is Valeo Foods, acquired by Bain Capital from CapVest for more than €1.7bn in May, according to Reuters. The acquisition is expected to be backed by €1.2bn in leveraged loans, equalling around 6.75x the company’s €180m EBITDA. 

In other news

  • Irish provider of auxiliary services to the healthcare industry UDG Healthcare is in the market with two sterling-denominated tranches of £1.550bn and £550m.

  • Swedish web hosting and software solutions provider group.ONE is also in the market with a €375m TLB.

High Yield - Secondary

Unfazed by seemingly transitory inflation figures emerging from the US, secondary traded up again this week, locking in a further +0.25 pts gains (73% +0.38 pts | 23% -0.17 pts). Energy (+0.56 pts) and Consumer Staples (+0.52 pts) drove the gains this week, while Industrials (+0.14 pts) and Utilities (+0.06 pts) held the rear.

Within Energy, EnQuest2022s surged up on Friday, as the group announced it had signed a new senior secured borrowing base debt facility for $750m. The new facilitywill allow the group to refinance its existing debt, and fund the acquisition of a 26.7% interest in Golden Eagle assets. The 2022 SUNs were seen at 97.5, up from around 91 on Monday.

Also tracking a meteoric rise, Raffinerie Heide’s2022 SSNs were up +4 pts on the week. Interestingly, this came with Thursday’s announcement that Equinor was selling its Danish refining business to Klesch (Raffinerie’s owners). 

Gary Klesch, the group chairman said in response to the news:

“Given the proximity of our refinery in Germany, I’m sure there will be lots of opportunities for both refineries to work together; especially when it comes to deploying our decarbonisation strategy”. 

As reported in late May, management said they would be looking closely at improving refining margins prior to a decision on refinancing the outstanding Notes. Perhaps the plan will be to merge the two new refineries with Raffinerie, and then refinance?

Elsewhere, it was a good week for weaker credits. CCC gained an average of +0.35 pts, closely followed by Unrated (+0.32 pts), while Double BB (+0.24 pts) and Single B (+0.19 pts) traced smaller gains.

The iTraxx European Crossover tightened notably on the week, quoted at 233 bps today, 14 bps inside the 247 bps since last Friday. In fund flows, HY credit funds saw further inflows across Global HY (+$244m), US HY (+$121m) and Euro HY (+$320m). Year to date, US-focused funds have captured the majority of inflows.

Leveraged Loans - Secondary

The market remained calm this week, with all sectors save utilities and consumer staples seeing marginal increases in prices. Buysiders have told 9fin most Covid-impacted business, in sectors such as travel and leisure, have traded back up to the mid- to high-90s off the back of a hopeful outlook on global vaccine rollouts. One buysider cautioned that while there is still some upside to some travel businesses quoted in the low 90s, these opportunities hold substantial risk because a full capacity travel summer is not a sure thing. One such credit could be Hotelbeds, which has a €400m 2025 TLB paying E+450 bps currently indicated at 90.9 and a €490m 2023 paying E+425 that is currently indicated at 91.3.

Industrials group Praesidiad took the biggest mover spot for the second time this quarter with its €290m 2024 TLB issued in 2017 and paying E+400 bps rising by 3.25 points to 84.5. In May, Fitch affirmed the company at CCC+ and withdrew its ratings for commercial reasons. The ratings agency stated that it expects the business to gradually recover after a cumulative 35% revenue drop in 2018-20. The future for the business continues to look rocky however, as Fitch noted the company’s limited ability to repay its revolving credit facility (RCF) that was drawn as a Covid-19 protection measure in 2020 and its high leverage (10x by 2023)  in the face of upcoming debt maturities in 2023 and 2024.

B3-rated builders’ merchant group BME’s €250m TLB paying E+400 bps was the biggest faller (-1.3 pts), though all the company’s loans are still quoted marginally above par. It priced an upsized €250m add-on at the start of June, also paying E+400 bps.

This week’s Loan Legal QuickTakes:

This week’s Loan Previews: