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
FLURRYM&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
YEARûATûSelecta amends aggressive docs
EUROPE HIGH-YIELD Several terms changed but no sign of broader push-backSELECTA 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 itdid 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 trancheswas 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.
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