Kloeckner Pentaplast sets call for €725M two-part bond deal

Klöckner Pentaplast GmbH is out to market with a €725 million, two-part bond offering ahead of a global investor call at noon London time on Feb. 1. Meetings will continue through to Feb. 3, with pricing to follow via global coordinators and joint bookrunners J.P. Morgan (physical, B&D) and Credit Suisse.

The two-part offering is guided to be split between a €400 million five-year secured tranche and a €325 million 5.5-year unsecured piece. Both tranches are non-call for two years, then at 50%, 25% and par. KP also has the option to redeem up to 10% of the bonds at 103 for the first two years, and there is a 40% equity claw for this period. Deutsche Bank and Goldman Sachs are senior bookrunners on the bond, while BofA Securities and Rabobank are joint bookrunners.

Launch of the bond comes after KP hosted a call on Jan. 26 to present a €1.175 billion five-year cross-border term loan. Price talk here is guided at E/L+475-500 with a 0% floor on the euros and a 0.5% floor on the dollars. The offer price on both tranches is guided at 98.5, to give a yield of 5.20%-5.46% on the euros and 5.72%-5.99% on the dollars.

Ratings have so far emerged from S&P Global Ratings, which upgraded KP by one notch to B on Jan. 27 with a B rating on the loan. This is on the back of the proposed refinancing and expected lower leverage, comments the ratings agency.

Banks are guiding investors to expect secured issue ratings on the bond of B/B2.

Together the deal will take out KP’s term loans split between tranches of €725 million in euros and €691.8 million in dollars, and the firm’s PIK-toggle notes due 2023 that total €473 million. KP's loans date from a cross-border offering put in place June 2017 to support the acquisition of Linpac, refinance debt and fund a dividend. The euro loan is priced at E+425 with a 0% floor and has been on a rollercoaster ride in the secondary market, falling from pre-lockdown levels in the mid-80s to a low in the high-50s during last March's sell-off. It has since recovered, and was in a 99/99.625 market at the end of last year, before moving towards par this year.

KP’s bonds followed a similar trajectory, and were bid around par in secondary at the end of last week, before stepping up to 101. As the company's secondary trajectory suggests it has performed well through the pandemic, boosted by strong demand for its films that serve both the consumer and healthcare sectors. In a third-quarter results update published Nov. 19, 2020, the firm reported a 30% rise in adjusted EBITDA for the quarter to €74 million and boosted 2020 cash flow guidance. The result was the ninth-consecutive quarter of adjusted EBITDA growth, and the company confirmed full-year EBITDA guidance at €290 million, or a 24% increase year on year.

For the 12 months ended Sept. 30, the company reported sales of €1,809.9 million, adjusted EBITDA of €285.2 million, and pro-forma adjusted EBITDA of €305.5 million. The firm also generated €228.1 million of cash available for debt service, and €142.1 million of free cash flow during this time for a cash conversion rate of 91%. This allowed net deleveraging from 8.4x as of Dec. 30, 2019 to 6.6x as of Sept. 30, 2020, according to the preliminary offering circular.

Pro-forma the refinancing, the firm will have a leverage ratio of 4.86x net secured and 6.36x net total based on a pro-forma adjusted EBITDA of €305.5 million. KP's PIK notes were put in place in July 2017 via Kleopatra Holdings, and totaled €395 million at launch.

SVP-backed Klöckner Pentaplast produces rigid plastic films used in packaging for pharmaceuticals, medical devices, food and other applications.