LevFin Wrap

Healthy Start to Q2, but no Guarantees

y Huw Simpson (huw@9fin.com), Kat Hidalgo (kat@9fin.com) 

High Yield Primary

The latest in a string of LevFin healthcare dealsOrganon was out marketing the bond portion of its $9.5bn package to finance their spin-out from Merck, and to fund its balance sheet. The bonds came in two Senior Secured tranches due 2028 ($2bn USD and EUR equiv.), and $1.5bn of Senior Notes due 2031. The Secureds opened with IPTs in the low 4s and low 3s respectively, and high 5s for the unsecured leg. A $2bn TLA, and $3bn (USD/EUR equiv.) in TLBs made up the full package, opening at L+200 and L+300.

Strong appetite allowed bookrunners to drop the TLA, pushing demand onto the TLB and Notes. The USD TLB upsized from $2bn to $3bn (the EUR TLB remained unchanged), on the bond side, the USD SSNs tipped up $100m, and the EURs increased from €850m to €1,250m. The SUNs upsized to $2bn. Final tranches and margins are given below.

Order books were big - the USDs over 10bn, and EURs more than 4.5bn. This reflected in the strong opening (101.25 SSNs / 102.25 SUNs), and shows the merits of not maximising for every last bp in the bookbuild.

On the Legals front, it’s notable that there’s very low guarantor coverage with only US subsidiaries providing guarantees. This represents 20% consolidated total net sales, 20% consolidated PF Adjusted EBITDA, 8% total assets and 5% total liabilities.

Topping up Fluids

Offering €500m in Senior Notes due 2029, UK-based manufacturer of automotive fluid systems (aka brake/fuel lines and tanks) TI Fluid Systems bolstered new supply early in the week. The SUNs will refinance a portion of the outstanding $740m and €500m Term Loans, the stubs to be refinanced into new $300m and €265m five and a half year TLBs. The reduction of the groups secured debt and a greater cushion provided by the unsecured’s allowed for an upgrade on the secured ratings to Ba3/BB+ from B1/BB-.

Pricing on the upsized €600m Notes finalised at 3.75%, cutting through PT in the 4% area, and well below IPTs of mid-4s (B3/B+).

Unusually for a single-B name, the covenant package came HY-lite. Weak guarantor coverage (a theme this week) allows for issuance of structurally senior debt, and guarantors represented just 32% of consolidated EBITDA, 35% of consolidated revenues, and 33% of total assets as of Dec-2020.

A new dawn for UPC

Swiss Telco UPC announced $1.25bn in Senior Secured Notes due 2031 (B1/BB-/BB+). Locked in for a 5.25-year non call, proceeds from the long dated notes will fund a new FinCo loan to UPC Financing, which will in turn redeem the €540m SSNs due 2027, the remainder is set aside for general corporate purposes. Final pricing nudged to the wide end of talk in the 4.75% area, settling at 4.875% for par.

As reported by Moody’s, UPC’s parent Liberty Global completed the acquisition of Sunrise on 11-Nov-2020. As of 31-Dec-2020, Liberty held 98.9% of Sunrise share capital and has since initiated a squeeze-out for the remainder, expected to close prior to issuance of the new notes. On consummation of the squeeze-out, the CHF 1,610m (equiv.) TLB and €213m RCF raised to refinance Sunrise’s debt will convert into UPC credit facilities. 

The combined group will have revenues of €3,293m, and Segment Adjusted EBITDA of €1,270m (as of 31-Dec-2020).

Other Primary

  • Debt purchaser DDM Group emerged on Friday with final terms on it’s €200m Senior Secured Notes due 2026 (B/B). IPTs of mid-high 8% settled wide at 9%, and the amount was downsized to €150m.

  • Azerion, the Dutch digital gaming and adtech company has mandated Pareto Securities for an up to €175m three-year Senior Secured issue. Featuring a novel step-down, the coupon will be lowered by 0.5% per annum following a minimum €300m equity raise from listing. The roadshow kicks off on Monday (12-Apr). 

  • Elsewhere, and just a week after offering a debut HY HoldCo bond, Gatwick returned with a follow on of £300m Senior Secured Class A Notes due 2030 - issued out of the IG OpCo on books of more than £3.4bn (Baa2/BBB/BBB+). Pricing finalised at G+180bps, well inside initial thoughts in the plus 210 bps area.

In other news:

Italian state lender CDP, together with Macquarie and Blackstone has been negotiating with Atlantia for the acquisition of it’s 88% stake in Autostrade since last year. A new offer made at the end of March valued Autostrade at €9.1bn, but asked the parent to cover just €870m of the previous €1.5bn of potential legal risks associated with the Geonese bridge collapse in 2018. Complicating matters, Spanish infrastructure group ACSsubmitted its own bid on Thursday, valuing Autostrade at €9-10bn, and without a request for guarantees against legal risks.

Leveraged Loans Primary - Sit. Stay. Roll-up, Healthcare habit hard to kick

Despite a short week, there was still time for several interesting deals to launch. Issuers continue to be drawn to a welcoming market ripe for repricings, and the 2021 healthcare frenzy is not showing any signs of slowing. But there were also some LBOs for investors to pick over, with the likes of Silver Lake, CVC and OTPP seeking to push through deals.

Logoplaste has come to market with a €770m-equivalent TLB to back the acquisition of a 60% stake by Ontario Teachers’ Pension Plan (OTPP) from Carlyle. The deal gives the portugese company an enterprise value of €1.4bn. A €440m TLB is being guided at E+400-425 bps, while the $300m TLB is set at L+425-450 bps. Both have leverage and ESG margin ratchets. The financing sits alongside a preplaced €80m-equivalent sterling facility. In 2016, Carlyle bought a 60% stake in the rigid plastic containers manufacturer which equated to an enterprise value of €660m. Commitments are due on April 20. 

Silver Lake-, Nestle- and EQT-backed veterinary chain IVC Evidensia has launched a €975m equivalent TLB to refinance existing debt - repay a PIK facility and term out RCF drawings. The £437m TLB3 and £538m-equivalent Euro TLB4 are guided at L+450 bps and E+350-375 bps with terms of the deal broadly in line with IVC’s existing loans (launched last August), they mature in February 2026 and pay L+450 bps with 101 soft-call for six-months. 

Co-investors Silverlake and Nestle led a €3.5bn investment into the business - scuttling earlier plans of an IPO, with EQT retaining the largest stake. The minority investment by Silverlake - better known for their technology based bets - sees IVC valued at a reported €12.3bn, that’s around 40x FY20 £263m EBITDA according to Moody’s. But the group is forecast to generate £400m in FY21, via their Sit. Stay. Roll-up strategy outlined in our loan preview, available here

Hard to kick the Healthcare Habit 

Loan issuance in the healthcare sector continued at pace, with two new deals launched and updates for several more. LBOs in particular pushed activity in the sector this week. 

Our In Rude Health - Healthcare booster for European Leveraged loans sector review is available here.

French drug manufacturer Cooper has come out with a €920m TLB to back its takeover by CVC. The B/B2/B+ rated TLB is guided at E+375 bps with guidance on the OID at 99.5-99.75. Charterhouse Capital Partners sold the company for a valuation of around €2.2bn.

Ameos’ €600m TLB supports the acquisition by Intermediate Capital Group and its founder, with guidance set at E+350-375 bps. The margin is subject to a ratchet with a 0% floor and a 99.5 OID. Following a decade-long holding period, Carlyle, and co-investor Quadriga have sold the business.

Women’s health pharmaceuticals company Organon, perhaps the most robust offering in the market currently, has seen a great deal of change in the $9.5bn bonds and loans mix since launch. For the loans, the dollar TLB was increased to $3bn from $2bn, dropping an initially planned $1bn TLA, while the €750m TLB tranche remains unchanged. Margins are unchanged at +300 bps with the OID to be set at 99.5, at tight end of 90.0-99.5 guidance. 

France’s largest hospital provider Ramsay Santé’s €1.35bn cov-lite 2026/2027 loan is also in syndication. The two-tranche loan plus €200m of proceeds from other debt sources, will be used to repay the company's existing senior secured term loans due 2022 and 2024 and €40m drawn on its capex/acquisition facility. Pricing on the five-year loan is guided at E+250 bps, in an example of how tight margins can get on today’s healthcare deals, although the credit is one of the market’s more highly rated with a Moody’s Ba3 rating. The deal has a 0% floor and a 99.5-99.75 OID. On the company’s six-year tranche, pricing is guided at E+275 bps. Like its competitor Elsan, Ramsay Sante has opted for an ESG ratchet, rising and falling by 10 bps.

Life science tools company LGC finalised its dividend recap after pricing flexed wider on the dual currency loan. The €330m tranche priced at E+375 bps after guidance rose from E+325-350 bps at launch to E+375-400 bps. The loan’s OID tightened to 99.75 from 99.5, with the $300m tranche priced at L+375 bps from revised guidance of L+375-400 bps and L+350 bps at launch.

Other Refinancing and re-pricings

Methacrylates manufacturer Röhm is seeking to take out its existing TLB due 2026, reviving memories of a difficult syndication process which finally closed just prior to the onset of the coronavirus crisis. 

Spun off from Evonik in 2019 and acquired by Advent International for €3bn, it was financed by a €1.785bn-equivalent loan that struggled to find buyers, with the underwriters forced to offload around €500m of paper at deep discounts in a second selldown. In total, just under a third of the euro and more than half of the dollar tranches were sold in the second syndication process, with the former clearing at a 89.5 OID and the latter at a 86.5 OID in February 2020.

The new €977m TLB has price talk guided at E+450 bps, while the existing €977m TLB and $612m TLB paid E/L+500 bps. Definitely one to watch with commitments due next Friday. 

Auto parts manufacturer TI Fluid Systems parked pricing on a €265m TLB tranche at E+325 bps down from E+350 bps at launch, while OID settled at 99.5-par, which was initially offered at launch. Guidance on the company’s US$300m TLB also stalled at L+325 bps, following guidance of L+350 bps at launch. Margins on the company’s existing US$738m and €499m tranches sat at E/L+375 bps. 

And finally:

Technology group Adept has signed up to a £70m loan package to replace a £40m RCF. The package consists of a £35m RCF, a £15m TLB and a £20m accordion facility, provided by Natwest and Bank of Ireland. Terms for the package are the same as its predecessor, which paid L+230 bps, according to LPC. 

High Yield Secondary

Up again on the week, Secondary made an average gain of +0.28 pts (74% +0.47 pts | 21% -0.31 pts). All industries saw modest moves on the week, with gains evenly distributed. The greatest improvements came from those poorer performing names, helping most industries to track back to near par.

By Issuance rating, Single B and Double BB names were up +0.31 pts, while Triple CCCtrailed (+0.08 pts). Year-to-date, it’s still a recovery story - as those credits with the furthest to go locked in more notable gains. While Single B’s have outperformed YTD, on average, Triple CCC names (99.6) are trading above Single B’s (98.8).

The iTraxx Crossover was quoted at 246 bps, flat on the 249bps seen last week. In European domiciled HY credit fund flows, all funds saw inflows, with Global HY +$273m, US HY +$464m, and Euro HY +$122m.

Leveraged Loans Secondary - Calm waters

Loans remained flat in the secondary market for the second week. No significant changes occurred across sectors, except the energy sector (+0.42 pts).

Spanish fishing business Iberconsa’s €300m E+700 bps 2024 TLB rose 2.25 pts this week, taking the trophy as highest riser this week. The biggest fallers included ADB Safegate’s €59m TLB due 2024 and paying E+350 bps. The instrument’s price dropped by -1.384 pts this week. The company manufactures airfield lighting and gate-related products. Hotelbeds’ €400m 2025 TLB also fell by -1.375 pts. The instrument pays E+450 bps. 

Beyond general trends surrounding airport traffics and tourism and continued confidence in consumer staples such as food businesses like Iberconsa, no company-specific events have occurred to encourage these pricing movements.