IFR International - 03.11.2018

Victoria falls on debut bond

UK carpet-maker suffers big share price fall after bond announcement

"RITISHûCARPET
MAKERûVICTORIAûISûSETûTOûPAYûAû
HEFTYûPRICEûFORûITSûDEBUTûHIGH
YIELDûBONDû
after an anxious market reaction to the
announcement saw its shares fall as much
ASûûDURINGûMARKETING
The deal is expected to price this week
after the roadshow wrapped up on
4HURSDAY
,EADSûONûTHEûõMûlVE
YEARûNON
CALLû
two senior secured set initial price
THOUGHTSûATûûTOûû-ARKETINGû
HOWEVERûHADûSTARTEDûATûLOWûTOûMIDûSû
WHISPERSûACCORDINGûTOûINVESTORSûRAISINGû
QUESTIONSûASûTOûWHYûTHEûCOMPANYûDECIDEDû
TOûPAYûUPûSOûMUCHûTOûRElNANCEûAûBANKûLOANû
THATûWASûAGREEDûJUSTûTHREEûMONTHSûAGO
4HEû""
""û30&ITCH ûRATEDûBONDûISûDUEû
to price as one of the widest Double B
ISSUESûTHISûYEARûACCORDINGûTOû)&2ûDATA

TERM OR BRIDGE?
4HEûPROCEEDSûRElNANCEûWHATû6ICTORIAû
DESCRIBEDûINû-ONDAYSûBONDûOFFERINGû
MEMORANDUMûASûAûBRIDGEûFACILITYûBUTûWASû
INITIALLYûREFERREDûTOûASûAûTERMûLOANûWHENûITû
WASûAGREEDûINû!UGUST
!UGUSTSûõMûTWO
YEARûFACILITYûWASû
EARMARKEDûTOûRElNANCEûBANKûDEBTûAROUNDû
aMûOFûTHEûaMûACQUISITIONûOFû3PANISHû
TILEûMAKERû3ALONIûANDû3ALONISûõMûDEBTû
4HEûRESTûOFûTHEûACQUISITIONûWASûFUNDEDûBYûAû
aMûSHAREûPLACEMENT
h4HEYREûSAYINGûTHEYûRElNANCEDûTHEIRû
DEBTûWITHûAûBRIDGEûWHICHûDOESNTûMAKEû
SENSEû)TûDOESNTûGIVEûAûGOODûMESSAGEvûSAIDû
an investor.
3HORT
TERMûBRIDGEûLOANSûAREûUSUALLYûPUTû
INûPLACEûINITIALLYûTOûlNANCEûACQUISITIONSû
ANDûAREûTYPICALLYûRElNANCEDûBYûLONGERû
TERMûDEBTûNOTûVICEûVERSA
4HEûINVESTORûSAIDûTHEûQUICKûRElNANCINGû
had caused speculation that one of
6ICTORIASûLENDERSûHADûPULLEDûOUTûFROMûTHEû
loan.
4HEûTERMSûOFûTHEûLOANûAREûNOTûKNOWNû
ANDûINVESTORSûSAIDûTHATûQUESTIONSûDURINGû
the roadshow on the matter were not
answered. It is not unusual for listed
companies to release details of their
BANKûLOANSûANDû6ICTORIAûHASûGIVENûDETAILSû
OFûITSûFACILITIESûINûTHEûPASTûACCORDINGûTOû
,0#ûDATA
6ICTORIAûADDRESSEDûTHEûRUMOURSûAROUNDû
lender support in a statement on
7EDNESDAYû)TûSAIDûITûHASûBEENûWORKINGûONû
THEûBONDûWITHûBANKSûFORûSEVERALûMONTHSû
and “continues to have a close and positive
RELATIONSHIPûWITHûITSûLENDINGûBANKSûHSBC
and BarclaysûANDûCONTINUESûTOûOPERATEûWITHû
SIGNIlCANTûHEADROOMûWITHûRESPECTûTOûITSû

COVENANTSvû4HEûTWOûBANKSûAREûALSOûJOINTû

global coordinators on the bond.

)TûSAIDûTHEûBONDûISûANûENTIRELYû

DISCRETIONARYûEXERCISEûANDûTHATûITûWANTSûTOû

SECUREûlXED

RATEûDEBTûANDûTHEûmEXIBILITYû

PROVIDEDûBYûAûBOND

$ESPITEûTHATûSTATEMENTûINVESTORSûWEREû

approached about a potential FRN tranche

BYûLEADSûINûINFORMALûDISCUSSIONS

SLIMMING MARGINS

)Nû-ONDAYSûTRADINGûUPDATEûRELEASEDûINû

CONJUNCTIONûWITHûTHEûBONDûMANDATEû

6ICTORIAûSAIDûRECENTûACQUISITIONSûWOULDû

mean its overall margins missing forecasts

BYûONEûTOûûPERCENTAGEûPOINTS

It said margins are still expected to

EXCEEDûTHEûPREVIOUSûYEARSûANDûTHATûITû

remained committed to increasing market

share and plans to make up the margins

over the next 12 months.

6ICTORIASûSHARESûWHICHûWEREûATûPûATû

THEûCLOSEûONû/CTOBERûûSANKûASûLOWûASû

350p over the course of marketing.

7HILEûTHEYûRECOVEREDûTOûPûTHATû

DOESNTûCHANGEûTHEûFACTûTHATû6ICTORIAûHASû

lost over half its value since the end of

-AYûWHENûTHEûSHAREûPRICEûREACHEDûAûHIGHû

OFûP

“The share fall has real implications for

THEûCOMPANYSûABILITYûTOûCONTINUEûWITHûITSû

GROWTHûSTRATEGYvûSAIDûAûSECONDûINVESTORû

REFERRINGûTOû!UGUSTSûSHAREûPLACEMENT

6ICTORIASûGROWTHûSTRATEGYûSINCEûAû

management change in 2013 has relied on

expanding market share through

ACQUISITIONSûWHICHûTHEûCOMPANYûSAYSûAREû

FOCUSEDûONûHIGH

MARGINûTARGETSûTHATûITû

intends to operate on a standalone basis.

)TûHASûMADEûûACQUISITIONSûSINCEûTHENû

SEEINGûUNDERLYINGû%BITDAûGROWûFROMûaMû

INûûTOûaMûINûûANDûITSû%BITDAû

MARGINûINCREASEûFROMûûTOû

7HILEûTHEûCOMPANYûSAIDûONû-ONDAYûTHATû

it is committed to increasing its market

share, INVESTORSûWORRYûTHATûTHEûSTRATEGYû

COULDûALSOûBEûJEOPARDISEDûBYû"REXITû4HATû

COULDûCUTû6ICTORIASûMARGINSûFURTHERûASûTHEû

5+ûISûITSûLARGESTûMARKETûACCOUNTINGûFORû

ûOFûPROlTSûWHICHûWOULDûLEADûTOûANû

increase in leverage.

6ICTORIAûWILLûBEûXûLEVEREDûPRO

FORMAû

RECENTûACQUISITIONS

4HEûDEALûWASûALSOûNOTûHELPEDûBYûPOORû

TRADINGûONû"ALTAûAû"ELGIANûPEERûWHOSEû

õMûûSENIORûSECUREDûûBONDû

""  ûISûTRADINGûAROUNDûûDUEûTOûPOORû

EARNINGSûCAUSINGûCONCERNûAROUNDûTHEû

sector.

Yoruk Bahceli

WEEK IN NUMBERS

37%

„ THE FALL IN UK CARPET-MAKER

VICTORIA’S SHARE PRICE LAST WEEK AFTER

ANNOUNCING A PLANNED REFINANCING

OF BANK DEBT WITH A €450m BOND.

THE COMPANY ISSUED A STATEMENT TO

REBUFF “MISLEADING” RUMOURS ABOUT

THE REASONS FOR THE BOND

3

„ THE NUMBER OF US HIGH-YIELD

ISSUES THAT WERE PULLED LAST WEEK

FOLLOWING THE WORST MONTHLY

RETURNS FOR THE ASSET CLASS IN

ALMOST TWO YEARS

€1bn

„ THE SIZE OF THE FIRST JAPANESE

COVERED BOND AFTER SMBC PRINTED

A FIVE-YEAR CONTRACTUAL DEAL THAT

ATTRACTED OVER €1.4bn OF DEMAND

€12bn+

„ THE SIZE OF KFW’S BOOK FOR ITS €5bn

FIVE-YEAR GLOBAL BOND THAT PRINTED

AT 20bp THROUGH SWAPS. THAT WAS AT A

MUCH WIDER SPREAD THAN THE LESS 34bp

IT PRINTED A FIVE-YEAR IN OCTOBER 2017

AS THE ECB RETREATS FROM THE MARKET

€801m

„ THE AMOUNT THE ECB BOUGHT

THROUGH ITS CSPP IN TRADES SETTLED

IN THE WEEK UP TO OCTOBER 26

In total, it has bought €173.427bn

640

660

680

700

720

740

760

780

800

820

840

Oct-05 Oct-12 Oct-19 Oct-26

€m

300

350

400

450

500

550

600

650

700

750

800

1/10/201803/10/1805/10/1809/10/1811/10/1815/10/1817/10/1819/10/1823/10/1825/10/1829/10/1831/10/18

Pence

Source: ECB