LevFin Wrap

Punch pub lunch, peas with a pinch of salt

By Huw Simpson | huw@9fin.com, Laura Thompson | laura@9fin.com

High Yield Primary

Any reservations?

Opening up the week, Spanish hotel chain NH Hotels marks the latest stressed refi entrant to High Yield. Offering €400m in Senior Secured Notes due 2026 (B2/B+), stuby IPTs emerged in the low/mid 4s before settling at 4.00%, the tight end of revised price talk. At a slight premium to the existing 2023’s, the deal will push out maturities and repay the cheaper 3.75% 2023 Notes - seen as low as 75 in March last year. 

Given the opportunistic nature of the deal, covenants were substantially similar to the existing 2023s, including an unusual security release mechanism (also present in 2023 Notes). LTM Adjusted EBITDA for Mar-2021 was -€61.8m, down from €568.8m in FY 2019. Duff & Phelps carried out the property valuation (€1,319m, or 48% gross debt secured by the collateral), although this was done via a DCF method, rather than actual property valuations. A market capitalization of 37% provides a slight cushion.

Automotive interior components manufacturer Grupo Antolin was also out, fitting in a longer dated €390m of Senior Secured Notes due 2028 (B2/B). Purposed to refinance the 3.375% 2024s, pricing again landed slightly wide of the existing, at 3.50%. You can read our Credit and Legal QuickTakes for more details.

Pop Ice

Next up came the bond leg of Nomad Foods Fortenova frozen foods acquisition and refinancing. Alongside the €553m TLB, €750m of Senior Secured Notes due 2028 were offered, with IPTs in the High 2s trimming down to 2.50% for par.

Acquired for €650m, fortenova’s frozen foods business will expand access to central and eastern europe, and allow Nomad to break into the ice cream category - helping smooth out lower sales in the hot summer months.

At 9fin we’ve also started taking a deeper look at ESG considerations for a selected number of credits. Our debut ESG Credit QuickTake on Nomad Foods highlights a lagging sector score on human rights from the world benchmarking alliance (which cites a lack of transparency), and a ‘middle of the pack’ position on palm oil and seafoods - among many others.

A long brawl with security

British pub chain Punch Taverns launched £600m in Senior Secured Notes due 2026(B3/B+), with proceeds to refinance the group’s existing securitisations. With a chequered past, the whole-business-securitisation model harks back to a founder capital raise in 1998, and then 2002. A three- year negotiation (partly complicated by the WBS model, with no intercreditor, pledges or cross-collateralisation) by senior noteholders led to a major restructuring in 2014.

As highlighted in our Financials QuickTake, there’s some execution risk on the shift in operating model to managed pubs (MPs), albeit with upside potential in the higher margin area. A solid asset base of £850m has helped sustain cash flows throughout lockdowns, as disposals supplement reduced sales. Capex spend will remain high in the next couple of years as the group continues its MP conversion, although this too should drop off.  

Providing plenty of yield, IPTs went out at mid 6s before pricing at 6.125% on Friday.

Elsewhere, German consumer electronics retailer Ceconomy was out marketing €500m in Senior Notes due 2026. Guidance emerged on Friday at 2.00% (+/- 0.125%), on books in excess of €1.3bn. The group carries a Ba1 rating from Moody’s, who note stable sales performance in its home market throughout 2020 and the first half of fiscal 2021. German rating agency Scope proves more generous, assigning BBB-. With hopes of breaking into the ‘global ratings oligopoly’, the group currently owns a 0.5% share in the European market, but its expansion ambitions raise questions around the possibility of ratings shopping.

High Yield’s worst kept secret - that you’re likely to receive a better rating from Fitch than its peers Moody’s or S&P - seems to bear out in the data. What’s interesting is that this divergence appears to be increasing. Although not directly comparable (for cost reasons, few companies pay for all three agencies) the data indicates Moody’s is the most stringent, followed by S&P.

In today’s anything goes market, do investors need to increase their ‘Fitch Premium’?

Other deals in market

  • Announced on Friday, the bond leg of Nobian’s spin-out from Nouyron arrived as €425m sustainability-linked Senior Secured Notes due 2026 (B2/B/BB-). Proceeds from the deal will part fund a €1.5bn dividend to Nouryon and place €70m cash on balance sheet. Current owners Carlyle and GIC will retain their ownership.

  • Also announced Friday, French retailer BUT (Mobilux Finance SAS) are offering €500m in Senior Secured Notes due 2028 (B2/B/B), which will refinance the existing €380m SSNs due 2024, and together with cash on balance sheet pay a distribution to shareholders. As predicted by 9fin’s Raul Ortega back in April - you can read our thoughts here.

  • Paprec, the French recycling group, announced €450m Senior Secured Notes(B2/B+), with proceeds to refinance notes and fund bolt on acquisitions of Dalkia Waste Energy and CNIM O&M.

Leveraged Loans Primary

Higher rated credits – and thinner margins – continue to come to market. Buysiders have been in the weeds with an increasing number of “tougher credits”, they say diplomatically, and are welcoming this past month’s flesh influx of B2 and B1 names. Just one B3 name appeared this week: metal cans manufacturer Titan announced a €1.175bn seven-year TLB, although tranche ratings are expected to come in a notch higher at B2.

Supply ramping up has also allowed buysiders to be more selective – with more loans flexing wider to entice investors in. With a wide margin disparity opening up between different credits, only one repricing is in market this week: nursing home and home care firm Colisee, whose €875m TLB is set to reprice an E+400 bps to E+375 bps, alongside a 99.75 OID. A €150m add-on, paying the same, accompanies, which led to a one-notch downgrade to B- from S&P.

Green a little lean for me

The greening of Lev Loans continues. Or the greenwashing, depending on who you ask.

“You can’t avoid the ESG question anymore,” one CLO shop said this week. “Talking to investors, talking to your peers, even talking to your colleagues – you just can’t avoid it.”

But the rather lean nature of ESG margin ratchets is keeping some buysiders disinterested. One buysider admitted not even looking at the ESG provisions in French ingredients maker Solina’s sustainability-linked €585m TLB in market this week. With margin movements at just 10 bps, linked to measures including raw material sources, the buysider confessed to struggling to see the merit in such low-digit incentives (read more here).

Ultimately, buysiders chomped down on this deal, which priced at E+375 bps and par from E+375-400 bps and 99.5 OID at launch. This tightening was accompanied by an upsize from €567.5m on ravenous buysider appetite.

“The KPIs in the market aren’t impressing us at the moment,” said another CLO shop. “We’re looking for companies that are improving their metrics in certain ESG ways, whereas most are just looking at reducing harm and usually a pretty unimpressive amount.”

One such harm reductions – greenhouse gas emissions – remain the most popular KPI this week. Nouryon’s€1.19bn TLB (B2/B/BB-), for instance, backing a spin-out of its base chemicals unit Nobian, has a total  +/-10 bps on the line based on carbon emission reductions and its use of renewable energy. It is guided at E+375 bps and 99.5 OID.

The most side-eyeing this week, however, was reserved for one of Virgin Media Ireland’s KPIs. The telecoms firm only has to produce an ESG strategy by 30th June 2022 to knock 3.75 bps off its €900m TLB (B/B2/BB). A similar provision by Asda at the beginning of the year had been labelled by some buysiders as “essentially greenwashing”. This is especially notable for backing a dividend recap to owner Liberty Global.

Another 3.75 bps will be lopped off if VMI manages a 10% improvement annually in network energy efficiency KWh/Tbyte. The third KPI is a one-off reduction in greenhouse gases by the end of 2021, again at a rather measly 3.75 bps.

Food for thought

A veritable feast for buysiders this week as three loans totalling a (g)astronomical €2.95bn in the food industry are tabled for buysiders to tuck into.

First, French wholesaler Prosol, which owns fresh food chain Grand Frais, is out with a seven-year €1.382bn TLB to refinance existing debt and buy-back certain preferred shares. It guides at E+375-400 bps and 99.5 OID. Polishing off, an accompanying six and a half year €250m RCF will partly fund acquisitions. Commitments are due 1stJuly. Trade press reported in February this year that French supermarket giant Carrefour was mulling an acquisition of Prosol, however those rumours were later disputed.

In another isle, ambient food (or shelf-safe food) producer Valeo Foods’€1.01bn-equivalent TLB package is guiding at E+400 bps and 99.0 to 99.5 OID on its euro offering (expected to be around 60% of the deal) and S+500-525 bps and 99.0 OID on the remaining sterling offering. A €175m-equivalent sterling second lien is already pre-placed. Funds back the purchase of Valeo by Bain Capital from CapVest.

The summer slim-down

This week, two loans are beach-ready, having slimmed down way past 300 bps to bring buysiders some summer-slender figures.

Continuing our trip around the supermarket, frozen foods group Nomad Foods closed up its €553.2m 2028 TLB (B1/BB-/BB+) at the tight end of revised guidance at E+250 bps and 99.75 OID. This is one of the slimmest margins of the year, originally launching at E+275 bps. Post-transaction, leverage is forecast at around 3.7x.

Surprisingly, however, Nomad’s crown for the slimmest margin is swiped this week by steel and aluminium recycler Befesa. The Spanish firm, one of the highest rated this year at Ba2/BB+, is out with a small €90m 2026 add-on that is guiding at a very thin E+200 bps. The original €526m seven-year TLB was repriced 50 bps down in February 2020 to E+200 bps. Paired with an equity offering of around €332m, funds will finance the $450m acquisition of American Zinc Recycling’s recycling assets.

In other news:

  • Ardian-owned healthcare software provider Dedalus wrapped up its refi and add-on after putting an extra €5m and tightening OID to par. An existing €920m TLB(B2/B/B+), first issued last year, repriced at E+375 bps and par from E+375 bps and 99.75 OID. A €90m add-on, upsized from €85m, partly back recent acquisitions.

  • French flooring and sports surface provider Tarkett is paving out a seven-year €950m-equivalent TLB (Ba3/BB-/BB+) that can include up to $150m of dollars. The euro offering is guided at E+325 bps, while the dollars guide at L+375 bps.

  • Consumer behaviour data and analytics firm Kantar is modelling its $500m TLB(B2/B-) at L+500 bps and 99 OID. $400m of senior secured bonds will follow. Funds support the acquisition Numerator from PE firm Vista Equity Partners, announced this April.

  • AutoScout24, digital automotive unit of Germany’s Scout24, priced a bite-sized €52.5m add-on at E+300 bps and 98.25 OID to repay a €50m acquisition facility.

This week’s Loan Credit QuickTakes:

This week’s Loan Legal QuickTakes:

This week’s loan previews:

High Yield Secondary

It was a non-mover across HY this week, with an average decline of just -0.1 pts (29% -0.24 pts | 67% +0.32 pts). By Industry, Energy made the only real gains (+0.35 pts), while Materials (-0.11 pts), Communication Services (-0.14 pts) and Healthcare (-0.19 pts) saw the greatest losses.

The iTraxx European Crossoverheld steady on the week, after tightening considerably last week, it was quoted at 232 bps today. In fund flows, HY credit funds saw further healthy inflows across US HY (+$232m) and Euro HY (+$462m), while Global HY retraced (-$48m).

Leveraged Loans Secondary

In a refrain now beyond familiar, the European leveraged loans secondary market was steady this week. All average sector-wide movements ducked well under +/-1 pts, with Communication Services topping at just +0.15 pts and Utilities just slightly taking the lowest spot with -0.03 pts – nothing to write home about. 

In larger individual movements, bakery ingredients producer CSM Ingredients’ €245m 2028 E+500 bps TLB fell below par with its -1.125 pts dip to 99. GTT Communications, who have their semi-annual bond coupon payments fast approaching at the year’s mid, also continue their ongoing loan slide, starting in January this year. Its €750m 2025 E+325 pbs TLB is now down to 81 pts as restructuring rumours continue to swirl.