European credit markets have seen a much needed lift in sentiment today, after the week started with two days of falling bond prices. The iTraxx Europe Crossover index was at 278 this afternoon, 8 basis points inside Monday’s close, while yesterday’s €350 million five-year deal from Loxam SAS traded higher in the secondary market after a solid execution against an imperfect backdrop.
Loxam's bonds broke at 100.75 this morning after landing yesterday with a roughly 0.125% premium, and SAZKA Group a.s.’s two-part offering appears to have been equally well-received. The pan-European lottery operator today upsized its transaction by €100 million to €600 million and launched the bonds comfortably inside guidance — at 99 for the tap of its 2027 notes, and E+412.5 offered at 99.5 for the new issue of six-year floating-rate notes, or FRNs.
But even for seasoned credits, bankers say execution is much less straightforward than at the start of the year. And investors say that after a month of weak returns, they are in no hurry to put cash to work unless there is a clear new issue on the table in the primary market.
“From a credit perspective, Loxam had no real concerns and the deal is a refinancing of upcoming maturities which reduces debt, while the five-year tenor is where investors want to be,” said a banker close to the deal. “But execution is more important than ever, and this not a market in which you can stick something up and it sells itself.”
With both borrowers coming to market on the back of recent ratings upgrades, it remains to be seen whether this apparent turn in sentiment will be enough to heighten interest in this week’s trickier credits. Price talk is yet to emerge on the debut deal for Italian family-owned pharmaceutical group F.I.S. - Fabbrica Italiana Sintetici, for example, and Covis Pharma is yet to announce a new pricing point on its rejigged cross-border deal which failed to get over the line last week. Initial price thoughts for the latter borrower's five-year euro bonds were at 7% area prior to last week's bond sell-off.
“Loxam is seasoned issuer with a curve to price off, so it was just a case of giving enough of a premium over its existing debt,” said an investor involved in the deal. “I would still say that right now, the bond market is a difficult place for a refinancing unless it is from a middle-of-the-road, solid credit.”
There are also some seasoned borrowers willing to change their strategy in the face of weakness in bonds, as Sazka demonstrated today. The borrower has typically favoured fixed-rate maturities but today upsized its six-year FRNs, becoming the latest in a series of borrowers to opt for the floating format as the market leans on strong demand from CLO buyers.
“We are happy sitting on the side lines unless deals are attractive,” said one bond investor. “We struggle to see where the catalyst is going to come from for the market to really improve, unless there is a real surprise from central banks.”
Story links
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Dorna revises offer price talk on €975M term loan recap
Group of Butchers allocates €320M loan; terms
High-yield bonds
Hurtigruten opens books on €50M of 3-year secured green bonds
Sazka Group increases 2-part secured bond to €600M, sets final pricing
Secondary markets
Saipem bonds sink on restructuring reports
Middle market and direct lending
Barings supports buyout of Stuart Turner by Epiris
CLOs
Jefferies prices €409M Bilbao CLO IV for Guggenheim
