LevFin Wrap

WeBuild Back Better, Buy High Sell Low

A relative lull in primary meant we only tracked two new issues this week, after drawing a close to an explosive November which saw €11.2bn of new issuance into a market that seemed forgiving of commercial shortcomings. 

On Monday, Pareto, acting as sole bookrunner, planted the seeds for €125m of five-year Senior Secured paper for Spanish fertiliser company Fertiberia. No news yet on pricing, with virtual roadshows ongoing through Monday 7th December. Triton completed the acquisition of the company earlier this year.

Webuild (formerly Salini Impregilo) came next on Tuesday, reconstructing the much needed refinancing of its June 2021 maturity wall, after an underwhelming take-up in January’s tender offer left the firm with ~€480m still due. However, the book build came at a price, with the unsecured Notes (BB-/BB) pricing at par with a juicy 5.875% coupon on Thursday, after upsizing to €550m and settling within 6% price talk. Their existing 3.625% 2027 notes issued in January this year were a different storey, rising to 5.4% yield from 4.83% pre announcement, as the new issue premium converged, according to LPC News - citing Tradeweb data. 

You can’t beat a bit of bully 

Given the extraordinary nature of market moves across November, this week we decided to take a more granular look at the price action for the month. On the whole, we witnessed a 3.175pts upward move across all names on average, with 89% up (+3.675pts) and just 10% trading down (-0.875pts). 

All sectors were in the green, with Energy (+4.675pts), Industrials (+4.375pts) and Consumer Discretionary (+4.25pts) unsurprisingly the top performers for the month, as optimism around vaccine rollouts helped give the most beaten up sectors light at the end of the covid tunnel. Healthcare was the ‘laggard’, up a modest 1.25pts.

Within sectors, Hotels, Resorts & Cruise Lines moved 8.75pts to the upside, buoyed by strong trading in names like Merlin Entertainments and Travelodge on hopes of an early vaccine boosting summer spending. Consumer Services (+6.75pts), Apparel (+5.625pts), Aerospace/Defence (+6.175pts) and Construction (+6.175pts) were also on a long list of beneficiaries of the market’s ebullience.

Growing risk appetite was also apparent when taking a closer look at ratings, with bonds CCC+ and below gaining an average of 4.125pts over the month. Single B’s moved up 3.825pts, double BB’s 2.75pts and sturdier triple BBB’s gained just 1.4pts.

Buy high, sales low

With most companies having  counted their beans for the 3rd quarter, we took a quick look at sales performance during the period. 

Diametrically opposite to their secondary price action during November, Energy and Industrials saw the biggest hits to their topline, with revenues falling -31% and -19% YoY respectively. 

We saw some improvement across Consumer Discretionary,  a sharp decline of -44.5% YoY during Q2 recovering to a more modest -7% this quarter, partly thanks to eased restrictions during the summer months. Measures implemented by governments to tackle the second Covid-19 wave have made life difficult in Q4, but vaccine hopes might prove to be a lifeline in coming months. 

On the other hand, Utilities (+19%), Healthcare (+9%) and Consumer Staples (+7%) experienced some sales growth, while IT (+1%) remained stable. 

9fin will do a deeper dive into Q3 earnings trends soon.

A rising tide lifts all boats (except Spanish cruise ships)

In a month where the likes of CarnivalPure Gym and Aston Martin were able to get issues over the line in primary, (incidentally, all now trading at a premium to reoffer) high beta credits were the clear flavour of the month. 

Cinema operator AMC Entertainment saw the largest move, as the SSNs  traded +25pts for the month to regain a 79 handle, however today’s news of  urgent talks with Warner Bros to reverse its decision to immediately stream all new releases, may see some price retracement. Coty (+18pts) also experienced equity-like moves to the upside, posting decent Q1 21 (end-September) numbers, predicting a return to positive FCF with the Wella stake sale leading to a reduction in Economic Net Debt by nearly 50% (after accounting for the 40% retained stake in Wella). 

However, the vaccine wasn’t enough to immunise everyone. Naviera Armas23s dropped a further 9pts, with the troubled cruise operator announcing a forbearance agreement with noteholders this week.