LevFin Wrap

Talk Talking, Top up Tapping, Tampered Packages

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

High Yield

You’d be forgiven for feeling a little overwhelmed over the last few weeks. January HY issuance now totals €14.9bn, with 32 deals pricing across 23 companies in the first month of the new year. European HY volumes are set to increase even further, and despite a 9.6% YoY increase in 2020 to €108.2bn, Fitch believes new issuance will hit €125bn in 2021. 

Wasting no time, four new transactions were quickly announced on Monday morning.

As expected, last Friday’s save-the-date for a ‘HY software company’ proved to be TeamSystem, who launched a €1,150m seven year offering of Senior Secured fixed and floating debt on Monday. The offering, and €1,476.5m fund IX equity contribution, will be supplemented by €300m in HoldCo ‘pay-if-you-want’ PIK Notes (the more relaxed issuer discretion type) as part of Hellman & Friedman’s second fund transfer deal. 

You can read our Credit and Legals QuickTakes for further details on the transaction in the links attached. Pricing and tranche splits emerged on Wednesday, with €300m 3.50% fixed notes, and the lion’s share going to the €850m E+375 floating tranche - both well inside IPTs of low 4s (B3/B-B+).

Next up came French affordable jewellery retailer THOM Europe - pricing €370m 5.375% Senior Secured Notes, and €250m 5.50% Senior Secured FRNs due 2026 (B2/B). The total deal upsized by €20m at pricing at the tight end of guidance for both tranches. Proceeds will help fund the buyout by Altamir and existing management for Bridgepoint and Qualium stakes, giving the group an EV of €937m on a EBITDA multiple of 7.0x.

Tampered Packages

Then, and in only the second largest deal of the week, global packaging manufacturer Kloeckner Pentaplast announced its whopping €1.9bn refi parcel. The €1,175m (equiv.) TLB portion was laid out first, offered in € and $, with the official launch of the bonds on Thursday - which came in two tranches, a 5Y €400m SSN (B) and 5.5Y €325m SUN(CCC+) offering. Proceeds from the wholesale refinancing will redeem an existing €1.4bn Term Loan due 2022 and the €473m rollup principal from €395m PIK Toggles due 2023.

A perennial irritation for HY investors, EBITDA add-backs were again on our radar for this name. The headline €305.5m ‘Pro Forma Adjusted EBITDA’ includes adjustments for (among other considerations) a sizable €10.8m management bonus - a reward for an exceptionally good year. This would be fine, but with no corresponding downward adjustment for exceptional non-recurring profit, you have to ask... cake eaten, is KP nuts?

Finally, and sharing many similarities with Kloeckner, the week’s largest LevFin deal came from BioGroup LCD, who launched the corresponding debut bond portion of their €1,500m Term Loan. Also structuring a layered capital offering, the loans were accompanied by €750m of SSNs due 2028 (B2/B-/B+), and €250m SUNs due 2029(Caa1/CCC/CCC+). Proceeds too will pay down existing PIK notes, as well as other Senior and Second Lien debt. Some last minute shuffling saw the SSNs steal €50m from the TLBs, before landing in the middle of 3.25-3.5% talk for 3.375%. The SUNs fared better, coming at the tight end of 5.00-5.25% guidance, marking a near record for CCC debt.

Legals on the deal are worth noting, and saw some pushback in bookbuilding. While Kloeckner set portability just below opening leverage (6.2x vs. 6.4x), BioGroup had no such qualms - trying its hand at portability significantly above opening leverage (6.75x vs. 6.0x). This was later reduced to 6.25x, and an EBITDA cap to synergies added at 25%. 

To the group’s credit, EBITDA is unusually adjusted downward to exclude non-recurring profits from Covid-19, although this would perhaps have been hard not to mention - given Covid-19 testing accounted for 21% of PF net sales for the nine months to Sep-2020.

Next came the Brits, bringing a set of opportunistic Sterling taps.

Talk Talking

Coming across the wires on Tuesday UK Telco TalkTalk was offering £100m additional fungible notes of the group’s 3.875% Senior Notes due 2025 (B+/BB-). Price talk of 97.375-97.625 emerged, before landing at the tight end with a small £10m upsize (yield 4.521%). Proceeds will repay the drawn amounts under the RCF, with additional proceeds to repay bank facilities.

TalkTalk’s second largest shareholder Tosca is set to acquire the entirety of the share capital, with a cash offer that values the firm at £1,112m. As with TeamSystem, further debt from outside the restricted group (more HoldCo PIK Toggle Notes) will form a chunky portion of the equity funding - this time somewhere between £250m and £364m.

While the group clings to a double BB handle from Fitch, the agency notes a lack of leverage headroom at its current rating. S&P was less inclined to clemency - dropping the group rating to B+ from BB- on expectation of greater pro forma leverage.

Top Up Tapping

On Wednesday further Sterling supply sloshed down the pipes with a £100m in additional notes from Thames Water, the UK water treatment, collection and supply group. Issued out of their EMTN programme, proceeds from the 4.625% Senior Secured Notes will fund general corporate purposes… and perhapsinfrastructure improvements

S&P maintains a negative outlook on the Class A and B debt, citing ‘challenging performance commitments’ to the 20% leakage reduction, 53% reduction in water supply interruptions and 6.3% reduction in per capita consumption - meaning regulatory penalties are likely. Pricing came in at 101.13, with a £50m upsize.

Finally, we come to an assortment of other deals.

Acquired by Triton fund IV in 2015 Assemblin has been on an extended M&A spree, picking out €152m of Swedish Targets in the nine months to Sep-20, with thirteen further Nordic purchases since. Fidelix, the ‘tech-driven building automation service company’ was the focus of Thursday’s offering - funded by a €100m tap of the group’s €250m 5.00% SS FRNs due 2025 (B2/B). Cash consideration for Fidelix amounts to €92m, while Triton will contribute an additional €20m in equity, leaving around €23m extra cash on the balance sheet after fees.

Return to the Fold

Quasi European high yielder Trafigura also returned, taking advantage of the favourable conditions. Following market form, the unrated commodity trader successfully placed €400m in Senior Notes due 2026 - emerging at long last after a six year hiatus in Europe. The order book was twice oversubscribed, and the pricing tightened to 3.875% despite a €100m increase on the minimum €300m size.

Elsewhere, parking infrastructure owner-operator Q-Park found a space for a mini €90m private placement of 2025 3.50% SSNs. Notes from the Dutch firm will fund general corporate purposes; including cash on balance sheet for working capital purposes, and committed capex.

Leverage Loans

ESG gimmicks and the repricing rush

A run of repricings hit the market this week as issuers looked to capitalise on cheap costs of debt and bubbling investor demand.

Meanwhile, two loans in the market attached what some fund sources have described as “gimmicky” ESG margin ratchets. Packaging producer Kloeckner Pentaplast is in the market with a five-year €1.175bn-equivalent euro and dollar TLB refinancing (find 9fin’s Credit QuickTake here). Three modest 2.5 bps ESG margin ratchets – based on GHG emissions, post-consumer recycled content packaging and gender diversity in management – were described as merely “a minor plus” by one fund manager, allowing them to access more ESG-minded investors at little cost to their returns.

France’s private hospital firm Elsan’s 7.5 bps margin ratchet on its €350m add-on was also described as “measly”. One portfolio manager side-eyed the actual ESG merits of the ratchet, which includes improving employee work-life balance and patient satisfaction. Elsan, who will put the funds to work financing its recent acquisition of clinic operator C2S, set OID guidance at 99.50 to 99.75, with margins at E+350 bps with a 0% floor.

Kloeckner’s price talk is wide at E+475-500 bps and 98.5 on the euro tranche and L+475-500 and 98.5 on the dollar piece, with a 0% euro floor and 0.5% dollar floor. Buyside sources suggest this is because Kloeckner, at B3 from Moody’s, is hanging one notch above CCC level – though S&P bumped holding company Kleopatra Holdings, up to B upon news of the refinancing this week.

Kloeckner is seizing an opportune moment to refinance, riding on hot technicals in the market and enjoying some positive Covid-19 side-effects: the pandemic boosted demand on the company’s pharmaceuticals division and drove down the cost of its materials. Distressed fund owner SVP, who took control in a 2012 debt restructuring is keen to use the funds to refinance its outstanding €1.4bn senior secured term loan due 2022 and its 2023 9.25% PIK notes. Klockner will also push out the maturity of its current €150m RCF due May 2022 with a new €150m RCF due 2025.

The Czech Republic’s pharma manufacturer Zentiva had the same idea – it launched a €1.275bn repricing, approaching lenders to drop 50 bps off a 400 bps margin with a 0% floor unchanged – and both publishers Springer Nature and insurance brokerage firm Howden Group Holdings also joined in the repricing run. Springer Nature came to market to reprice its existing €2.154bn and $868bn TLBs, looking to shave 25 bps off both margins and 25 bps off the dollar floor to 0.75%, as well as push maturity out two years. Howden, meanwhile, repriced its $1.265bn at L+325 bps and a 0.75% floor and its €317m TLB at E+350 bps. The company also extended the maturity of its euro tranche by three years to November 2027 to match the dollar tranche.

Elsewhere, keen investor appetite continued to tighten margins across the board on fresh loans. Euro Ethnic Foods finalised a seven-year €465m term loan, tightening pricing to E+350 bps after guidance of first 400 bps then E+350-375 bps. The funds, which back its acquisition by PAI Partners, include a €50m RCF. Biogroup-LCD’s€1.45bn TLB priced at E+350 bps after original guidance of E+375-400 bps with a 0% floor and 101 soft call protection for six months, rounding off its bond and loan refinancing by pushing €50m of its TLB to its senior secured paper. Consultancy AlixPartners, meanwhile, won tightest pricing with its seven-year €344m TLB at E+325 bps and its seven-year $1.775bn TLB coming in at L+275 bps from L+275-300 bps, both with a 25 bps step-down is leverage slips below 4.5x. And finally Signature Foods’ seven-year EUR341m TLB pricing firmed to E+350 bps at par, down from first E+400 bps then E+375 bps.

A borrower-friendly market also saw the week open with the relaunch of ION Analytics' $1.9bn refinancing. Price guidance on the two seven-year TLBs, one $850m and one €865m, stands at 425 bps after guiding at 425-450 bps upon launch last October. The dollar loan offers at 99.00 OID with a 0.5%, while the euro offering has a 0% floor at 98.5. ION Analytics, a merger of financial data firms Dealogic and Acuris, postponed the deal back in November, pointing the finger at market volatility stemming from the US elections. However, some buysiders have told 9fin that they struggled to get comfortable with numerous add backs and lack of full disclosure. The market has rallied since, and there may be some juice in the pricing to find buyers, noted one. 

However, price talk on bakery ingredient producer CSM Ingredients’ seven-year €245m TLB, slated to fund its acquisition by Investindustrial, is wide at E+500 bps with an OID of 97.00 to 97.50. Making use of a hot market, telecom infrastructure firm DeltaFiberalso priced its €50m add-on at 99.125 and a more modest E+350 bps with a 0% floor. 

Secondary - High Yield

Despite the new issuance deluge, HY Secondary was slightly softer on the week, as instruments traded down an average of -0.31 pts (21% +0.67 pts | 77% -0.58 pts). Largely Beta driven, all Industries were in the red, with Consumer Discretionary (-0.47 pts), Industrials (-0.37 pts) and Energy (-0.33 pts) leading the charge. Utilities (-0.11 pts) Communication Services (-0.18 pts) and Consumer Staples (-0.19 pts) fared slightly better.

The iTraxx Europe Crossover was quoted at 271 bps on Friday, moving wider versus 256 bps seen last week. Meanwhile, European domiciled HY credit funds saw some outflows (-$101m), although Global High Yield (+$269m) and US High Yield (+$282m) continued to experience inflows.

AMC Collects From ATM 

While GameStop mania provided much unwanted volatility to equity markets this week, troubled US Cinema chain AMC Entertainments pulled a relative coup - taking advantage of a bidding frenzy in its own stock to issue 228m new shares for proceeds of $810.8m. This, coupled with a timely exchange of $600m convertible notes into leaven equity helped the company reduce first lien indebtedness by the same amount. In a letter on the 25th, CEO Adam Aron was unsurprisingly upbeat - “Today, the sun is shining on AMC… any talk of imminent bankruptcy for AMC is completely off the table”. 

AMC’s 2025s marked the largest gain on the week, notching a +12 pts gain in response to the news, trading above par for the first time.

Secondary - Leveraged Loans

Valeo Foods on the table

M&A activity had less of an impact on secondary pricing this week, with the biggest headline there from pan-european food producer Valeo Foods, whose L+850 bps £81m TLB rose to 99.5 from 95.5 the week prior after Sky News reported that owner CapVest had appointed Goldman Sachs to oversee a sale (27-Jan).

Instead, industries vulnerable to the pandemic kept feeling its effects. 9fin’s biggest slump came from German hospitality firm A&O Hotels and Hostels’ E+400 bps €295m TLB due 2025. The 3.1 pt slump from last weeks’ pricing followed a corporate and facility downgrade to Caa2 from Moody’s, who estimated a €10m to €15m quarterly cash burn rate around post interest payments. The slip was mirrored by other hospitality and travel companies, with Hotelbeds’E+450 €400mB&B Hotels’E+475 €665m and cruise line Hurtigruten’sE+400 €575m TLBs down -1.4, -1.2 and -1.4 pts respectively on last week. GTT Communications also continued to slide, this week down -1.9 pts on its L+175 $1.77bn TLB.

On the other side, Cineworld’s L+250 $3.325bn TLB’s price jumped +4.2 pts to 72 after the company sidestepped shareholder revolt over a controversial bonus scheme that advisory firms ISS and Glass Lewis previously branded excessive. Shareholders instead greenlit the rewards package, which could result in executives pocketing over £200m in stocks if Cineworld’s share price rebounds to 190p within three years. Not missing out on the story of the week, the loan pricing uplift mirrored a surge in Cineworld’s stock as the UK’s own amateur investor Reddit army, inspired by their US counterparts, rushed to buy up heavily shorted UK stock.