LevFin Wrap

Strides of March, Comfortable Shoes and (Fore)Courting Investors

By Huw Simpson (huw@9fin.com) and Laura Thompson (laura@9fin.com)

Despite a dry week in HY primary, there are signs fresh deal flow is set for the coming weeks, with opportunistic refi’s, debut credits, and buyersiders keen to put money to work.On the loan side, there was more variety for investors this week as both EG Group and Ahlstrom-Munskjo offered up LBO funding, alongside the now customary refi buffet. 

The Picture so far

Despite a later start, Leveraged Loan issuance in 2021 has now caught up with High Yield’s record printing, thanks in large part to a string of refis and repricings, albeit with some further ground needed to catch-up to early 2020 levels. For HY, the start of 2020 was itself no slouch, with issuance well in excess of volumes seen in the preceding three years. Volumes in the two markets are far more equally weighted to-date this year, both printing debt in the high €20bn’s. 

High Yield Primary - The Strides of March?

There are plenty of deals waiting on the sidelines, and are expected to hit the market soon (see our pipeline).

In the M&A space, Roman namesake Caesars Entertainment is progressing with its takeover of William Hill, expected to complete early in the second quarter of 2021, possibly as early as this month (March). Elsewhere, near-term HY supply is expected from Advanz Pharma’s buyout by Nordic Capital, the G4S buyout by Allied Universal, and some Sterling supply from Lone Star’s purchase of McCarthy & Stone. Usually a reliable bet, we’d also expect some of the larger Telco names to arrive with opportunistic deals, an example of which could be 9fin’s January deal prediction Altice.

More immediately, Finnish paper maker Ahlstrom-Munksjo is expected to launch a €650m secured bond offering next week as part of its take private with the Bain Capital led consortium. The deal is also to be financed with a €1bn equivalent TLB, and €325m RCF, commitments are due on the 11-March.

A Long Walk in Comfortable Shoes

Birkenstock, of orthopaedic shoe fame, is also set to offer fresh supply, with funding for its acquisition by L Catterton and affiliates (including Financière Agache - the family investment company of Bernard Arnault). The Birkenstock brothers will retain a stake in the 250-year old company, and last Friday commented on the announcement: 

“For the next 250 years we need partners sharing the same strategic and long-term vision as the Birkenstock family. In L Catterton and Financière Agache, we have found those partners”. 

The strategic partnership hopes to facilitate growth into new markets, including India and China, with further investment into the German sites expanding production, logistics and sales operations. The acquisition values the group at around €4bn, and financing is expected to include loans and bonds, across euros and dollars.

Running with the times, L Catterton and executives at LVMH raised a SPAC (‘Aspirational Consumer Lifestyle’), for $225m in September 2020. The follow-on - Aspirational Consumer Lifestyle II - was announced last month with plans for up to $300m.

In other news

Elsewhere, Swiss gambling data company Sportradar is reportedly in talks to go public, via the Horizon Acquisition Corp. II SPAC, shares of which jumped to just over $12 after the announcement, before settling at around $11 at close on Thursday. The SPAC announced the completion of a $500m IPO in Oct-2020, and was raised by Todd Boehly, who owns minority stakes in the LA Dodgers and LA Sparks.

We also published February’s version of ‘Sustainable Junk’, our monthly newsletter on all things ESG in leveraged finance. Tracking all green bonds and loans issued since Jan-2017, around 30% have come from Materials companies, with 28% from Industrials, and 17% from Communication Services.

Loans Primary: A refi breather

Acquisitive EG Group doubles 2L for courting investors 

This week, EG Group expanded its LBO debt package, near-doubling its second lien €330m 2027 loan (Caa2, Moody’s) to €610m. The loan, which is guiding at E+700-725 bps, will refinance existing euro and USD second liens due April 2026. Along for the ride is a $450m 2026 TLB (B3, Moody’s), forecasted to pay L+425-450 bps with a 0.5% floor at 99 OID. A privately-placed £675m 6.25% five-year bond tops the selection off.

“Demand is going to be high for paper with elevated margins in this kind of market, so I’m not surprised they upsized it,” said one buysider. “Of course, some will sit out, but for a business that’s expanding in a market that’s only really seeing short-term instability – this is a nice deal.”

The overall debt package fuels the acquisition of British supermarket Asda’s forecourts business and German OMV AG in a move that will almost double the number of EG’s UK sites to 720 and add another 285 in Germany. Asda’s forecourts business has an EV of £750m and OMV AG of €485m.

This is the latest in a long line of acquisitions by EG Group. Per 9fin’s Credit QuickTake, the firm has bought up:

Cumberland Farms in the US in Oct-19 for consideration of $2,058m; 71 Fastrac sites in the US in Jul-19 for €240m; 69 Certified Oil sites in the US for €146m in Aug-19; 537 Fuelco stores in Australia in Apr-19 for consideration of €1,072m; and 145 KFC outlets across UK & Ireland in Mar-20 for consideration of €154m.

Buyside sources were happy with this highly acquisitive expansion, however, and are confident in a market recovery for EG’s fuel business after a rough 2020 – “so this is a good time to buy in” – but side-eye EG Group’s reported leverage. 

EG Group puts its net senior leverage at around 5.5x and net total leverage at about 6.0x post-transaction, notably lower than the 2020 adjusted leverage of 7.1x Moody’s recorded at the end of 2020. EG Group has delayed releasing audited financial results, stating that KPMG – which replaced Deloitte in October 2020 – needed more time given the business’s scale. This led to it going down the private placement route for the bond component of the financing. 

The deal is hot on the heels of Asda’s leviathan £3.75bn debt package backing its purchase by the Issa Brothers and PE firm TDR Capital. Those with access to documentation can contact loans@9fin.com for a copy of our Loan Legal QuickTake.

Ahlstrom-Munksjo: €1bn in Take Private Paper

Finnish speciality paper maker Ahlstrom-Munksjo kicked off March with a €1bn take private loan. A €550m 2028 TLB and $547m 2028 TLB (B2/B, Moody’s/S&P) are both guided at E/L+400-425 bps, with 99.5 OID and 0% floor and 99 OID and 0.75% floor respectively. The euro tranche has bullet repayment while the USD tranche amortises by 1% per annum.

“It’s a good one to get your teeth into after some pretty underwhelming stuff in past weeks,” said one buysider, highlighting the firm’s geographical diversity across Europe and the Americas as a selling point. Moody’s puts adjusted leverage high at 6x, with €60 million of unrestricted cash boosted by €325 million of undrawn revolving credit facility at deal closure. As noted above, it is expected to issue €650m in seven-year non-call three secured bonds. 

The firm clocked in €323m adjusted EBITDA with a 12% EBITDA margin in 2020, according to S&P.

Bain Capital, Ahlstrom Invest and Viknum made a public tender offer for all shares in Ahlstrom-Munksjo in September 2020 for an EV of around €2.1bn. The group now owns over 90% of the company, with Bain Capital’s share at around 55% and Ahlstrom Invest at 40%.

The Restaurant Group Chops Covenants on £500m Refi Feast

Wagamama-owner, The Restaurant Group (TRG), is joining the refi fun for a total of £500m in a deal that loosens covenants. The new funds – a £380m five-year TLB and £120m four-year super senior revolver – will bolster liquidity after the group burned £5.5m a month during the UK’s lockdown.

Both fundings boast leverage margin ratchets, with an initial weighted average cost of debt of 7% sliding to 6% if leverage is below 2.0x. TRG’s minimum liquidity covenant is also being cut by £10m to £40m until June 2022, at which point a leverage covenant takes over. From the period ending December 31, 2022, net leverage-based covenant testing at a 5x threshold will kick in, dropping every six-months to 4x by the end of 2023.

The funds will repay all TRG’s existing debt facilities, including: £50m from the UK government’s Coronavirus Large Business Interruption Loan Scheme; a £160m revolver; and Wagamama’s £35m super senior revolver, along with its 2022 notes.

BME Group, Ahlsell affix margin ratchets

Netherlands-based building materials firm BME Group is another company working margin ratchets into its €228m add-on and €920m repricing (B2/B, Moody’s/S&P). The €228m 2026 add-on is guided to pay E+425-450 bps at a 99.75 OID, with the €920m amendment seeking to reprice this level from E+500 bps. It currently pays 475bps but it will step up after first quarter compliance certificate reporting. After the repricing, the loans, which in part push a dividend recap for sponsor Blackstone, will include the following ratchets:

  • If leverage is below 4.0x: 375-400 bps

  • If leverage is between 4.0x-4.5x: 400-425 bps

  • If leverage exceeds 4.5x: 425-450 bps

Swedish construction business Ahlsell, meanwhile, went green for its margin ratchet. Like peer Stark Group, Ahlsell’s margins will increase or decrease 7.5 bps depending on the firm’s annual greenhouse gas emissions. Pricing on this ESG-linked €1.558bn 2026 TLB repricing and €250m add-on is at E+350 bps at par from initial talk of E+350-375 bps. Original pricing on the loan was E+425 bps.

Any savings will be reinvested in sustainability investments. This type of ESG ratchet – tied to a measurable KPI and funnelled back into improving the company’s environmental performance – has previously wooed investors, who are often sceptical of ESG ratchets. 

In other news this week: 

  • French hotel chain B&B Hotels kicked off a€100m 2026 TLB this week, alongside a waiver process. The loan is guiding at a hefty E+550 bps with a 0% floor at 95.5 OID and an 18 month non-call period.

  • Car hire firm Sixt announced it had signed a €750m revolver to refinance a previously undrawn loan with KfW in 2020. The firm already repaid some of its revolver following a December 2020 €300m 1.75% bond issue.

  • Electronic chemicals company Atotech’s dual-currency loans package is guiding at L+275 bps and 99.5 OID on its $1.35bn 2028 TLB and L+275-300 bps on its €200m 2028 TLB. On Friday, terms the dollar portion was revised to L+250 bps, and E+275 bps on the euros (with a 25 bps leveraged based step down, ).

  • Norwegian cruise operator Hurtigruten priced its €46.6m June 2023 loan at E+800 bps as it shores up liquidity to buoy its restart of operations. The firm announced it now has around €80m in available liquidity and undrawn facilities. It also secured an extension of a waiver of senior secured leverage ratio covenants to end 2022.

  • Anti-virus software business Avast booted up a repricing: two seven-year $350m and €300m tranches are both guided low at E/L+225 bps with a 0% floor at 99.5-99.75 bps.

High Yield Secondary - Budget Booster

Secondary traded off marginally by Thursday’s close, down -0.17 pts with the majority of names settling slightly down (28% +0.50 pts | 69% -0.45 pts). Industrials continued their (relative) performance over other Industries, trading up +0.10 pts, At the lower end, Communication Services (-0.40 pts), Real Estate (-0.38 pts), and Materials (-0.26 pts) all saw some declines.

Expensive support was again extended in the Chancellor's March Budget, up £44.4bn to a weighty total of £344bn, although not everyone was happy with the proposed package. However, with furlough now in place until September, the continuation of business rates relief / grants will come as a great comfort to firms in the hardest hit sectors.

Stonegate Pubs - whose management had already baked in these expected measures into forecasts - saw its GBP 2025s trade up a quarter of a point on the Chancellor's announcement, to settle around 105.5. Several of the Sector's other hardest hit names made small gains, with Hotels, Resorts & Cruise Lines up +0.42 pts (UK-only names were up +0.34 pts). 

Transportation & Logistics names gained +0.15 pts, of which Heathrow is the only active UK constituent (themselves up an average of +0.21 pts despite no explicit reference to support for the sector). The airport laid bare its feelings in a response to the budget snub:

“Failing to even mention aviation, let alone provide full business rates relief for airports in today’s Budget, is a missed opportunity to ensure the sector can play a key role in the country’s economic recovery”

Finally, the iTraxx Europe Crossover was quoted at 257 bps on Friday, closing in slightly on the 264 bps level seen last week. In fund flows, European domiciled HY credit funds positions were all down on the week, with Global HY posted a -$594m outflow, and US HY and Euro HY were down -$129m and -$274m respectively, both reducing from more sizeable outflows last week of -$608m and -$445m.

Loans Secondary - Hurtigruten Rides Fresh Financing Wave, Comexposium Stalemate

Another stable week (as at Thursday close) in secondary leveraged loans, albeit with some more slight downward trends than in previous weeks. In Europe, Financials, IT and Communication Services were all down an average -0.1pts. In the US, Consumer Discretionary (+0.2 pts) and Communication Services (+0.2 pts) were its most buoyant, while its runt, Energy (-0.2 pts) diverged from its European peer, where Energy powered ahead (+0.5 pts).

Industrials is in Europe’s second place (+0.1 pts) this week, towed along by Hurtigruten. The Norwegian cruise operator sailed clear to this week’s number one spot: its €575m E+400 bps 2025 TLB rode the wave of its ongoing debt raising +3.76 pts to 88.0 pts. Following up, recruiter Alexander Mann Solutions’ £200m L+550 2025 TLB and $162m L+550 2025 TLB rose +3.3 pts and +3.0 pts to 93.1 and 93.0 respectively.

At the other end of the spectrum, Spanish fishery Iberconsa €300m E+700 bps 2024 TLB reversed earlier uplift by pricing down further this week at -2.2 pts to 88.3 pts.

Event company Comexposium’s ongoing clash between its shareholders and lenders mean slight drop in two of its TLBs: -1.5 pts shaved off both a €114m E+400 bps 2026 TLB and a €355m E+400 bps 2026 TLB. The company entered 12-month French law sauvegarde proceedings in September 2020 to win a stay on all interest payments. One buyside source says discussions between sponsor CAA and creditors have stalled despite €75m of new subordinated debt being fed in to fund cash flow needs.