LevFin Wrap

Bella ITaliON Feast on Best Before Date

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

High Yield - Primary

Market participants will be all too aware of today’s staleness deadline for year-end numbers. Running down to the wire, a further ten issuers hit the market this week - offering nearly €4bn in fresh supply. Due to the 135-day rule auditors will no longer provide full comfort on Dec-2020 financials, putting (at present) around 60% of issuers out of contention until March numbers are published.

New Issue Round-up

Link: Table

Bella ITaliON

On Monday, two Italian IT firms opened the week with buyout financing. ION Group launched funding for banking software and digital infrastructure firm Cedacri, offering €650m in Senior Secured FRNs due 2028 (B3/B/B+). Together with the notes, €86m of cash and a €773m equity contribution will fund the acquisition and repay existing debt, placing an EV of €1,422m (9.1x) on the business. 

Fellow countryman and provider of infrastructure services and business ‘solutions’, Lutech hit send on its own LBO transaction. The €275m Senior Secured Notes due 2027, €50.2m of cash, and a €225m equity contribution by sponsor Apax and management will fund the deal (B2/B). Offering a similar multiple (8.7x) Lutech has a more slender EV of €506m.

Legals on Cedacri host a relatively aggressive covenant package. Leverage based step-down’s in the asset sale covenants can build restricted payments (RP) capacity, which in turn can convert into debt capacity. Punchy EBITDA add-backs are also noteworthy, increasing the clean figure by almost 80%. Similarly, Lutechallows RP under the asset sale covenant (subject to a leverage test), and the conversion of RP to debt capacity, alongside the ability to debt fund any permitted investment up to 1.5x EBITDA.

Both groups have limited geographic diversity, generating the majority of revenues in Italy (Cedacri 97%, Lutech 90%; FY2020). The former however benefits from stable recurring revenues, estimated by management at 75%, with over 80% of contracts on an average duration of three-years (60% in excess of six-years).

Global luxury furniture and lighting design company - International Design Group - closed out the third Italian offering of that morning. Marketing €470m in Senior Secured FRNs due 2026, IDG redeemed its existing 2018 €320m SS FRNs and funded the acquisition of YDesign - an e-commerce retailer based in the US. Final pricing emerged on Wednesday of E+425 bps (par), the tight end of PT of E+425-450 bps (99.5), and a neat 175 bps reduction on the 2018s.

Cerba passes the test

Cerba, the French pathology lab group launched the bond portion of its €4.5bn takeover by EQT last Friday, marketing €420m Senior Secured Notes due 2028 (B1/B), and €325m Senior Notes due 2029 (Caa1/CCC+). Final pricing came at the tight end of talk on both tranches, 3.50% on the seniors, and 5.00% for the unsecured - giving a healthy 150 bps spread (PT of 3.50-3.75% and 5.00-5.25% respectively).

A popular credit, Cerba boasts high margins with minimal capex and working capital needs. A largely fixed cost base, the new sponsors hope to make further cost savings on personnel as french regulatory law changes. With limited pricing power (regulated tariffs comprised 75% of revenues in 2020), the group has historically pursued volume growth through new acquisitions in order to grow inorganically. You can read our full Financial QuickTake here.

Speed boost on balanced trim

Next up it was the turn of two automotive component manufacturers, a refinancing from US-based Dana Inc. and a liquidity / acquisition top-up from German Adler Pelzer. Dana, who focus on drive systems predominantly in the US (51% of 2020 sales), and Europe (31%) offered €325m Senior Notes due 2029 (B2/BB). Around a fifth of the size, Adler Pelzer marketed a small €75m (mirror) tap of its €350m 4.125% Senior Secured Notes due 2024. Adler acquired STS Group’s acoustics division back in November, and is currently in the process of buying a 73.25% stake in STS’s plastics business - expanding into the hard trim market for medium to heavy trucks. The Faurecia AST purchase (also in progress) will consolidate soft trim exposure, which S&P expects will reinforce the group’s position with French carmakers.

Green Roofs, but less watertight?

As noted in Josh Latham’s April’s edition of “Sustainable Junk”, green issuance is well suited to the Real Estate market - and we predicted more to come in the wake of Neinorand Via Celere’s success. 

Another Spaniard, AEDAS Homes launched their own inaugural NC2 green €315m Senior Secured Notes due 2026 (Ba2/BB-/BB), to refinance existing debt and place cash on balance sheet - of which €62.5m will be paid out as a dividend in Jul-2021. Pricing at 4.00% (IPTs 4.00-4.25%), joint leads Goldman Sachs and Citi also managed to amend the call structure to NC1.5.

Wary of making bold claims, an abnormal call period has historically been a fair predictor of toppy market conditions. Hardly a racy credit, AEDAS’ NC1.5 does have the merit of placing its amputated schedule at the lowest EHY yield since 2014. 

Other deals in market

Leveraged Loans Primary

Credits on offer this week, show the continued strength of defensive sectors such as healthcare, and food-related businesses. Pricing, however, has flexed wider for those companies with a more cyclical business.

In addition, another sterling loan has come to market using Sonia, with buysiders continuing to have plenty of B3 paper to pick and choose from.

Medical deluge

Healthcare continues to dominate the market in 2021, now making up 17% of all loans in the 9fin database. Many borrowers in the sector have benefitted from strong Covid-19-related financial bumps and are taking advantage of a friendly leveraged loans market to refinance. In what appears to be becoming a market constant, many healthcare businesses have included ESG provisions in their documentation.

The largest deal this week, Cerba’s €1.525bn TLB, priced at E+375 bps, the tight end of guidance at E+375-400 bps. The term loan, which comes with 101 soft call protection for six months, was rated B1 and single B by Moody’s and S&P respectively. It backs a €4.5bn LBO that will see Partners Group exit the business, EQT take majority control and PSP reinvest.

While the loan priced tight due to strong financials off the back of PCR testing demand, Cerba did concede on a number of doc changes, including decreases in the company’s margin ratchet step downs, the removal of its inside maturity basket and a reduction in its unlimited restricted payments ratio to 5.7x, down from 5.95x. 

See our loan preview and update on doc changes for more details. 

Supersize Me(hilainen)

Finnish healthcare provider Mehilainen (B/B2/B, S&P, Moody’s, Fitch) upsized its TLB2 to €1.06bn from a €310m add-on to refinance an existing TLB1. In December 2019, Mehilainen repriced a €200m second-lien term loan at E+725 bps (at par) and a €760m first-lien TLB and €380m add-on loan, which both priced at E+375 bps at par. CVC’s 2018 LBO valued the business at €1.8bn, according to Reuters

Buysiders have previously shown a dislike of existing loans remaining in the capital structure rather than being refinanced, saying that they create unnecessary headwinds for the future. 

Price guidance for the upsized loan was squeezed to E+362.5-375 bps from E+375 bps and OID to par from 99.5-99.75. The business looks healthy, with limited impact from Covid-19 and strong revenue growth since its 2018 LBO. The financing comes with six months of soft call protection at 101, 0% floor and is subject to an ESG KPI-based ratchet worth +/- 10 bps.

Seeing clearer

German ophthalmic lens and eyewear maker Rodenstock has also joined the fray, launching a €780m leveraged loan financing backing its buyout by Apax Partners. The deal will value the business at €1.8bn, according to Bloomberg

A €660m seven-year covenant-lite term loan B is guided to pay E+475bp, a healthy margin to compensate for its smaller position compared to the competitors that dwarf it, such as Essilor Luxottica. The loan will come with a 0% floor and is guided at 98.5-99.0 OID. The financing also comprises a €120m revolving credit facility. Commitments are due 21 May.

Sonia calling

Healthcare services provider, UK-based Acacium, formerly Independent Clinical Services, is in the market, with a £375m term loan refinancing. The seven-year covenant-lite TLB is guided to pay 525 bps over Sonia, with a 0% floor at 98.5 OID. The loan is priced richly to take account of the fact it is sterling, according to LPC. Only one healthcare deal has priced with a five handle to date in 2021: Advanz Pharma, to compensate for its chequered past in price collusion.

In other healthcare news...

  • Specialist materials and equipment provider to the biopharma, healthcare and education sectors Avantor Funding (BB+/Ba3/BB, S&P, Moody’s, Fitch) has a €250m, five-year TLB guided at E+225-250bp and a €680m, seven-year TLB guided at E+275-300 bps in syndication. Both maturities are being offered with an OID of 99.5 and floor of 0%.The US company’s financing will go towards the acquisition of German peer Ritter.

  • Pricing is also out on a €530m term loan B for yet another French healthcare provider. Santa Cie, a home medical assistance business, will refinance existing debt and reimburse convertible bonds. The covenant-lite seven-year TLB is guided to pay E+400 bps, with a 0% floor and a 99.5-100 OID. Interest margins will have an ESG-linked ratchet worth +/- 7.5bp, subject to certain KPIs.

Beyond healthcare, Belgian aluminium systems manufacturer Corialis will also be making use of Sonia. The £224m tranche is guided at 450bp-475bp over Sonia with a 0% floor and a 99 OID, while a €629m tranche is guided at 375bp over Euribor with a 0% floor and a 99.5 OID. The loans will back Astorg’s acquisition of a majority stake. Commitments are due May 21.

Single-use PACCOR

Rigid plastic packaging firm PACCOR, formerly Coveris Rigid, priced its €120m fungible TLB add-on at 98, the lower end of 98-98.5 guidance. Other terms were in line with the €317m 2025 first lien TLB, which supported PACCOR's 2018 purchase by US PE firm Lindsey Goldberg, closing at E+450 bps. It sits alongside a €70m second-lien, priced at E+750 bps. A recent downgrade put the company in the B3 category, while a history of non-recurring add-backs related to recurring operational restructurings and concerns around the sustainability of the sector left some buysiders cool. See our loan preview here

Food for thought

Around €1.2bn of leveraged loans is set to hit the market to back Bain Capital's €1.7bn acquisition of pan-European food business Valeo Foods Group, according to LPC. The financing totals around 6.75 times Valeo Foods approximate €180m EBITDA. The company, which has yet to be rated, has already attracted significant investor attention, according to the report, due to strong revenue growth.

Also in food, Azelis, which has expected ratings of single B and B3 from S&P and Moody’s respectively, is back in the market for a €330m, non-fungible TLB add-on, guided at a tight E+400 bps and 99.5-100.0.

In line with this week’s theme of defensive sectors, French technical and inspection services provider Socotec priced its €800m-equivalent covenant-lite TLB at the tighter end of guidance. The business is rated B2 by Moody’s. 

The seven-year TLB comprises a €550m TLB, priced at E+375 bps with a 0% floor at par, from E+375-400 bps and a 99.5 OID at launch. A $300m TLB priced at L+425 bps, from L+425-450bps at launch. A 0.75% floor and 99.5 OID on the dollar TLB remained the same.

High Yield - Secondary

Inflation fears may have washed through the equities market, but for steely HY Secondary we’re only seeing a slight decline. On average, the market traded down -0.23 pts (18% +0.30 pts | 79% -0.36 pts). By Industry, Real Estate (-0.48 pts) and Consumer Staples (-0.33 pts) saw the highest losses, with Financials (-0.08 pts) and Utilities (-0.11 pts) seeing the lowest losses. 

The iTraxx European Crossover was flat on the week, quoted at 256 bps today. In European domiciled HY credit fund flows, Euro HY fell out of favour (-$126m), Global HY languished (+$40m) and once again US HY (+$253m) saw healthy inflows.

Leveraged Loans - Secondary 

The secondary market was flat this week, with no major sectoral fluctuations. The biggest movers were energy, with a shift of 0.15 pts downwards, while consumer discretionary moved 0.11 pts upwards.

The biggest climber this week was Praesidiad, a manufacturer of force protection solutions, integrated perimeter security systems, and industrial mesh production and fencing products. The company’s €290m TLB maturing in 2024 and paying E+400 bps, rose 4.542 points and is now indicated at 80.2. 

This week, 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.