IFR Magazine – January 20, 2018

BONDS HIGH-YIELD

$EBENHAMSûTHEIRû;BONDûPRICES=ûFELLûWHILEûASû
soon as Matalan announced its numbers,
their bonds popped.”
While some investors expressed their
CONlDENCEûINû-ATALANSûRESULTSûMANYûWEREû
surprised by the reception the deal got,
citing the extent of the downturn the
company once faced and taking a longer-
term view on it beyond Monday’s results.
A manager at a fund that owns the bonds
BEINGûRElNANCEDûBUTûISûNOTûPLAYINGûTHEûNEWû
deal, said: “If people turn negative on the UK
or they have a bad quarter, these things can
TRADEûOFFûPRETTYûSIGNIlCANTLYv
0ROCEEDSûWILLûBEûUSEDûTOûRElNANCEû
Matalan’s outstanding £342m 6.875% 2019
lRST
LIENûANDûaMûûûSECOND
lien bonds.
The lead said Matalan’s sponsors were
rolling in their holdings of the second liens
into the new deal.
PURE GYM’s £360m seven non-call three
senior secured note offering was accelerated
by a day and priced at 6.375%, inside price
talk of 6.5%-6.75%.
Several investors said the company
BENElTEDûFROMûPROVIDINGûAûRELATIVELYûRISK
free investment in the sterling space.
“It shows a comfortable degree of
resilience to any downturn in the UK
economy. It seems like the value gym sector
is quite a good place to be if you’re a global
high-yield manager with the UK in your
benchmark,” said one investor.
Some saw the chunky yields on offer on
both deals, which have become a rarity in
the high-yield market, as a hedge against a
troubled sector more generally.
“I think banks learned that they could get
burned pretty badly,” said one fund
manager.

The cautious approach on the new deals

marks a change from last year, when, most

notably, budget supermarket Iceland had to

drop a 10-year note after pushing tight on

pricing and cut the overall size of its deal

despite its success story relative to other

British retailers.

However, leads may have been too

cautious, with Pure Gym’s note seven times

subscribed, according to several sources and

ONEûBANKERûWHOûSAWûlVE

HANDLEûPRICINGûASû

more appropriate, took this as a sign that

the deal was cheap.

Barclays, Lloyds and Morgan Stanley led

Matalan, while Barclays and Jefferies were

joint global coordinators on Pure Gym, with

RBC, Credit Suisse and ING as joint

bookrunners.

M&A DEALS BRING FRESH SUPPLY

FLURRY

M&A deals for Selecta, Crown Holdings and

Lowell kick-started fresh supply for 2018, a

year that is widely expected to be more

balanced than the last in terms of new

SUPPLYûANDûRElNANCINGS

Market participants are expecting the share

OFûRElNANCINGûINûTHEûUSEûOFûHIGH

YIELDûPROCEEDSû

to decline in 2018, given the high number of

RElNANCINGSûTHATûTOOKûPLACEûLASTûYEARûWHENû

71% of proceeds went towards such purposes,

according to Bank of America Merrill Lynch

data. An increase in the share of debut issuers

compared with 2017 is also largely expected.

h!ûLOTûOFûTHEûRElNANCINGSûGOTûDONEûGOINGû

on the back of last year, and given market

conditions are so strong, you’re getting the

natural pipeline rolling out with debut

issuers and new deals and acquisition

trades,” said a syndicate banker.

SELECTA took to the high-yield market with

a €1.3bn-equivalent four-trancher

(subsequently reduced to three) to back its

ACQUISITIONûOFûPEERû!RGENTAûANDûRElNANCEû

existing debt in conjunction with a tender

offer.

This is the latest acquisition for Selecta,

which acquired Pelican Rouge in March

2017 with a €180m capital injection from

majority shareholder KKR. This helped the

issuer’s outstanding bonds’ performance,

which once struggled as weakness in the

vending machine sector fuelled concerns

around liquidity.

The any-and-all tender offer on Selecta’s

outstanding €350m 6.5% senior secured

2020 and SFr245m 6.5% senior secured 2020

NOTESûWHICHûTHEûNEWûBONDSûWILLûRElNANCEû

Investors will receive a 172bp fee the offer

that expires on January 24.

7HILEûTHEûDEALûISûRElNANCINGû3ELECTASû

entire capital structure and was seen as a

positive given leverage falling, it did not sail

through without push-back and the

company had to amend several terms in its

covenant package.

The deal is being seen as a bet on the

success of the company’s recent

acquisitions.

“We could revise the outlook to stable if

Selecta completes the proposed transaction

and demonstrates progress in both

integrating the Pelican Rouge and Argenta

businesses and meeting its growth plans,”

S&P analysts, who assign the company’s B

rating a negative outlook, said in a note.

Moody’s rates the notes B3 and the company

Caa1.

CROWN HOLDINGS, on the other hand,

brought a three-trancher, pricing a €335m

lVE

YEARûATûûAûõMûEIGHT

YEARûATû

Selecta amends aggressive docs

„ EUROPE HIGH-YIELD Several terms changed but no sign of broader push-back

SELECTA made several changes to terms deemed

aggressive in its bond documentation ahead of a

new issue but the amendments are not seen as a

general sign of increased investor resistance.

The vending machine operator’s modifications

included tightening the leverage ratio at which it

can disregard a change-of-control event as well

as a no-default covenant.

That would have allowed it to pay dividends

and make other distributions, known as

restricted payments, even if it was in technical

default.

It also had to remove a term that explicitly

said it could make restricted payments through

investments in unrestricted subsidiaries, which

are not bound by the deal’s covenants, even if it

did not have capacity to make these payments

through entities bound by the deal’s covenants.

“It wasn’t particularly investor push-back,

but more investor coordination, with the benefit

of good research work done early,” said one

investor looking at the deal.

The company was bringing a €1.3bn-

equivalent four-tranche offering, comprising a

six-year non-call two euro fixed, a six-year non-

call one euro floater, a six-year Swedish krona

floater and a six-year non-call two Swiss franc

fixed-rate note to fund its acquisition of peer

Argenta.

In the end, it raised the targeted amount

through three tranches after dropping the

Swedish krona. “Demand for the other tranches

was very strong,” said a banker close to the deal.

Market participants said the investors’ victory

was in large part due to Selecta’s history and

the large size of its deal, as well as a five-day

roadshow that allowed more time to analyse

documentation.

And market participants believe power still

largely resides with issuers. While the market

has slightly widened after November’s sell-off,

conditions are still highly issuer-friendly.

The last deal that saw push-back on its

documentation was UK online retailer Shop

Direct. The company had to cut its ability to pay

a future dividend, but, like Selecta, it was also

highly leveraged.

Yoruk Bahceli