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European HY pipeline: Mandates build, but rising yields give cause for concern

Three high-yield bonds priced in Europe last week for €1.45 billion, taking the year-to-date deal count and volume to 44 for €26.3 billion, versus 44 for €19.4 billion in the same period in 2020.

The market is nearly over the hump of earnings season, and the pipeline of new issues is expected to fill — largely with refinancing of short- and long-dated debt, along with deals from trickier sectors and a smattering of acquisition-related paper.

At present there are no live deals in the market, but that is not expected to last provided the slightly more positive tone set at the start of this week holds. Indeed, the slower start to the week is likely due to softness creeping into secondary following the sharp rise in government bond yields. High-yield has been fairly robust, but there was cautiousness and signs of fragility last week as the iTraxx Crossover widened nearly 30 basis points to 265 (though it has tightened 10 bps today).

Still, any ongoing move wider in rates will make refinancings of spread-sensitive, double-B rated deals less likely.

Both weeks in the last fortnight have started in similarly quiet fashion, only to then pick up. Last week offers a glimmer of likely upcoming activity, as Victoria refinanced notes not yet in their first call, and Ardagh Metal Packaging issued green bonds. Indeed, the market's first sustainability linked bond is understood to be in the works and could appear in the next few weeks, while many on the sell-side comment that their pipelines are filling with more opportunistic refinancings.

Latest developments
Privately placed bonds were a feature of supply last week. EG Group Ltd., which cannot access the public bond market until its newly appointed auditors have had more time to complete their work, sold £675 million of secured notes to help finance its latest acquisition of petrol station forecourts, while PureGym sold a €45 million fungible add-on to its 2025 notes.

Restaurant Group PLC (TRG) has signed a £500 million loan financing package to refinance all of its debt, including notes at its Japanese-themed subsidiary Wagamama, according to a statement today. The 4.125% Wagamama notes due July 2022 are callable at par on March 31, 2021.

Logoplaste Consultores Técnicos SA on Feb. 26 announced that Ontario Teachers' Pension Plan Board has agreed to acquire The Carlyle Group's majority stake in the company. A staple financing with total leverage of 5.75x was put forward, but sources indicate a more levered structure that does not include bonds is likely to be used.

Another deal not coming to high-yield is the financing supporting the Bain-led take-private of Ahlstrom-Munksjö Oyj. It has been in the shadow pipeline as a likely bond deal for months, but today a roughly €1 billion-equivalent, cross-border term loan was launched to back the buyout.

LBO/M&A
Garda World Security on Feb. 22 announced that its 235 pence per share offer for G4S PLC is final, and will not be revised. This appears to put Allied Universal in the driving seat to acquire G4S, with its offer underwritten with a $6.8 billion-equivalent debt financing. This includes €715.4 million and $950 million seven-year term loans, one-year secured bridges of €813 million, £368 million, and $1.675 billion, and a $1.285 billion one-year unsecured bridge.

Bain Capital Private Equity and Cinven announced on Feb. 8 that they have entered into definitive agreements to acquire Lonza Specialty Ingredients, a division of Lonza AG, for an enterprise value of CHF4.2 billion. Details on financing are yet to emerge, but both senior and junior debt will back the deal, according to sources. A staple financing arranged by UBS and BofA Securities with starting leverage multiples of 4.75x/6x (1L/total) supports the sale, market sources add, who put EBITDA at the unit at roughly CHF300 million. However, some bankers comment that a more heavily adjusted EBITDA number may be used, taking the size of the debt raise even higher.

A bond offering to take out the bridge supporting Permira's €1.2 billion takeover of Italian footwear retailer Golden Goose is likely in late April/early May, according to sources. The company is understood to have released a trading update earlier this month that was encouraging, but will wait for full audited quarterly earnings to be prepared before coming to market, sources add. Alongside the buyout, a unitranche facility of roughly €240 million provided by Arcmont, formerly known as BlueBay Private Debt, in 2019 as a dividend recap will be taken out.

Nordic Capital's proposed takeover of Advanz Pharma Corp. is to be backed by $1.58 billion-equivalent of euro bridge facilities, with a new senior term loan and senior secured notes expected. The financing package comprises a $200 million-equivalent multicurrency revolving credit facility, a senior term loan of $360 million-equivalent in euros, euro-denominated senior secured notes sized up to the equivalent of $560 million, and sterling-denominated senior secured bonds sized up to $460 million.

Entain's London-listed shares were up sharply on Jan. 4 after the gaming company, formerly known as GVC Holdings PLC, said it had rejected an £8.1 billion potential takeover bid from MGM Resorts International, its partner in the U.S. The potential deal comes after Caesars Entertainment agreed to take Entain's U.K.-based rival, William Hill, private in September 2020 in a deal valued at £2.9 billion excluding debt.

Lone Star has lined up Goldman Sachs to arrange and underwrite a £275 million term loan to refinance debt at McCarthy & Stone PLC following completion of its proposed take-private of the U.K. retirement-home builder. The five-year loan is in addition to a £225 million underwritten bridge loan lined up earlier to refinance McCarthy's £200 million revolver that is expected to be taken out through a high-yield bond issue.

Late in 2020, Morgan Stanley Infrastructure agreed to buy Tele Columbus AG in a deal that will also bring an equity injection for the German cable company. In its statement, Tele Columbus said the deal would significantly reduce its net debt and thereby bring a "better risk assessment" for the remaining bonds and loans.

In November 2020, Italy's Serie A football clubs unanimously approved a €1.7 billion bid from funds CVC, Advent and FSI for a 10% stake in the media company that will manage and market the TV rights to the league, according to reports. Markets sources suggest this stake purchase will be financed through the high-yield market.

Apax and CVC are eyeing the European business of William Hill PLC, which will likely be auctioned off once Caesars gets shareholder approval to proceed with its offer for the company, according to the Sunday Telegraph in November 2020.

Refinancing
Douglas in February commenced a bondholder identification process as it would "like to enter discussions with bondholders," according to a letter sent by the agent, it emerged last week. CVC Capital Partners-backed Douglas has been in focus for some time regarding an upcoming refinancing of its bonds, given the near-term maturities of February 2022 on its €200 million revolving credit facility, and the July 2022 due date on its €300 million issue of secured bonds.

Altice is said to be looking at a large bond refinancing.

McLaren Group Ltd. has been expected for the last few months to be about to announce an equity raise, with a bond refinancing also likely to be on the cards. The company in September mandated Goldman Sachs and HSBC to advise on a potential debt refinancing and equity raise as part of a strategy announced earlier in 2020 to strengthen its balance sheet.

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