Klöckner Pentaplast releases IPTs for €725M 2-part bond offering

Klöckner Pentaplast GmbH has guided its €725 million, two-part bond offering as follows:

• €400 million, five-year (non-call two) secured tranche with initial price thoughts in the low-5% area
• €325 million, 5.5-year (non-call two) unsecured piece with IPTs in the high-7% area

Investor 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. 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 €1.18 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 and secured bonds and CCC+ rating on the unsecured notes. This is on the back of the proposed refinancing and expected lower leverage, comments the ratings agency. Moody's has also assigned a B2 secured rating and Caa2 unsecured rating. The recovery ratings at S&P are three for the secured notes and six for the unsecured paper.

Both bond 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.

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 in mid/late January, 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.