LevFin Wrap

Big Buck Buy-ins Up the Ante

9fin

By Huw Simpson | huw@9fin.com

With over €7bn printed in December already, European HY has seen higher volumes in 2020 than any year since 2017. Just two new deals were offered and priced this week, as issuers took advantage of a market finally starting to wind down to the Christmas break.

Progressive Jackpot

Last week, Groupe Casino announced its intention to raise €500m in new long term debt, via a €200m add-on to its Jan-24 TLB and €300m in Senior Notes. The fungible TLB launched on Wednesday (9-Dec), with a E+550 bps margin and initial pricing suggested a 97.5-98 OID (B2/B). Guidance revised to 98.0-98.5 by the end of last week, and then 98.5-99.0, and 99.0-99.5 on Wednesday. The final OID set at 99.75, with a €25m upsize.

The senior unsecured bonds launched on Monday (14-Dec), with IPTs of mid 7s, and broadly conventional documentation (Caa1/B). Bumper interest pushed pricing down, in four successive rounds of tightening from the 7.25% and then 7% area, to a revised price talk of 6.75-7.00%, and final pricing of 6.625%, with a €100m upsize on books around four times covered. Despite heavy tightening, the 2026s demonstrated healthy demand with opening bids seen around 101.

Proceeds from the offerings will fund a tender offer on a portion of the group's outstanding EMTNs, alongside €735m from cash generation and the Leader Price disposal. A €2bn RCF forms part of the transaction - pushing maturity to Oct-23 under its springer, and increasing headroom on covenants. Casino is subject to a 5.75x gross leverage ratio in Q4 20, where it currently targets 5.41x. Pro forma for the transaction, the cash injection helps gross leverage to 5.4x, down from 6.5x pre transaction.

House Rules

Late Monday morning also saw the launch of House of HR’s seven year €200m Senior Subordinated Notes (Caa1/B). Third quarter earnings released in late November showed YoY sales down -9.5%, with EBITDA a comparative -24%. The firm quotes a 19% ‘strong recovery’ in sales versus Q2, although it’s worth noting Q3 figures have exceeded Q2 figures in each of the past three years. The outlook is somewhat muted, as S&P expects it to take until 2022 before EBITDA recovers to 2019 levels.

Proceeds from the offering are ticketed for new acquisitions, although as Moody’s notes - only €44m of near term targets are identified, Stevin and Riviera. With €152m set to be used as cash on the balance sheet, liquidity improves to €425m, albeit with a portion earmarked for M&A. A lion's share of the €4m in fees and expenses will go to sole bookrunner J.P. Morgan, with KKR acting as lead manager.

Rich IPTs in the low to mid 8% area were cut back to talk of 7.75-8.00% and 7.50-7.625% on Tuesday, before pricing at the tight end. While covenants on the deal were similar to previous issuances we note the explicit ability to prime the offering with future 2nd Lien debt, which would rank ahead of these Notes, up to at least 4.75x Net Secured Leverage.

Down to the Felt

Following on from yesterday’s Q3 Results piece, we take another look at Sales performance this year. On a rolling LTM basis, median sales growth declined in the first quarter of 2020 to -0.9% (-1.1%), dropping further by a substantial -3.8% (-5.7%) in the second, with a smaller -0.9% (-2.7%) reduction in the third quarter.

Bankrolling a Hot Streak

In stark contrast to earnings, raw issuance (when excluding USD offerings) in European HY has seen more than €90bn of fresh supply YTD - according to 9fin data. Looking back, only 2017 showed higher volumes (€105bn). The same can be said for December volumes, with this year’s €7.1bn last beaten by 2017’s €10.6bn.

Secondary

In a Secondary market at odds with primary, recent momentum tailed off as instruments traded down an average of -0.08 pts for the week (34% +0.41 pts | 65% -0.34 pts). By Industry, Energy (+0.35 pts) was again the winner, with the average instrument now priced at 96.4, in spite of a seismic -31.1% fall in YoY Q3 earnings. Meanwhile, Financials (-0.13 pts), Consumer Discretionary (-0.16 pts) and Communication Services (-0.17 pts) all notched small slides.

Finally, spreads tightened back in this week, with the 5Y iTraxx Crossover hitting 242bps today; the index was quoted at 258bps last Friday, and 234bps the week before.

We’d like to thank all our subscribers for their continued support in 2020. We wish you all a Merry Christmas and a Happy New Year from all the 9fin team. The LevFin Wrap will return in 2021.