Download now!

Issuance of Bonds Doubles YoY, Loans Triple Boosted by A&E; Average YTM Jumps to 8%; €76.5B of 2024/25 Bond Maturities Left to Tackle; Wave of Repricings Expected

In this edition of the EMEA Primary Market Wrap, we cover 2023 and use data from Reorg’s bonds and loans database to examine the key trends in the high-yield bond and leveraged loan primary markets.

Some comparisons are drawn to the 2021 market, as a result of a partial closure of the market in 2022.

Key Takeaways

• Bond issuance in the European market more than doubled year over year to €55.8 billion in 2023, though this was half the €118.5 billion volume in 2021 and below the 10-year average. Term loan B issuance volumes rose three-fold to €87.75 billion in 2023.

• 2023 saw solid investor appetite, as 38% of bond issuances upsized in syndication and only 5% downsized.

• Teva Pharmaceuticals, Dana, Ams-Osram, Schaeffler, Worldpay, Solenis, Air France-KLM were among top performing bonds since launch in 2023. Isabel Marant, Amara Nzero, iQera, Cerved and Media and Games were among the worst performers.

• Refinancing drove 2023 high-yield issuances, as takeover activity was limited. Dividend recaps, which were absent in 2022, made a resurgence in 2023.

• Amend-and-extend dominated the loan market. In terms of use of proceeds, M&A activity in the loan market was more pronounced than in the bond market.

• The average implied yield to maturity, or YTM, at issuance for fixed rate bonds almost doubled to 8% in 2023 from 4.5% in 2021, but early 2024 issuances show signs of tightening.

• Average pro forma interest coverage ratio, or ICR, fell to its lowest level in five years to 4.1x, but is still reasonable.

• B rated bond issuances (fixed and floating) priced at an average implied YTM of 9%, representing a 208 bps spread on BB rated issuances, which priced at an average of 6.9%.

• The rating spread on TLB issuances was lower, at 100 bps, with a 476 bps margin above the reference rate on B rated issuances, compared with 376 bps for BB rated issuances.

• Lower credit quality issuers may have opted for loans rather than bonds as bonds demand higher rates and offer less flexibility. Similarly, margin on floating rate notes was slightly higher than the margin on equally rated floating rate loans.

• Significant work needs to be done to address the €76.5 billion of 2024 and 2025 bonds maturities.

• Takeover activity is expected to increase in 2024 as the gap in expectations between buyers and sellers reduces and private equity firms are under pressure to deliver returns. It will remain subdued compared with historical periods though.

• In the near term, repricings are expected to be a prominent feature of the loan market. CLO issuance is expected to provide support to the European loan market.

Unlock comprehensive insights by downloading the EMEA Primary Market wrap 2023 and delve into the complete report.

For more reports and guides by Reorg, please click here.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and X.

Download now!

2023 Covenants Less Permissive Compared With 2022, but Slight Loosening at Year-End Gives Borrowers Cause for Optimism in 2024

Key Takeaways:

• A&E and refinancing transactions dominated 2023. However, a number of LBOs reinvigorated the market, and dividend recaps gave sponsors a route to extract returns where other exit options were not available.
• Our predictions at the start of the year have largely hit the mark. In A&E deals, covenant terms were mostly recycled, leading to improved overall covenant quality compared with 2022. There were few new money deals for investors to choose from though, leading to relatively looser terms on those deals. Nevertheless, the overall picture shows covenants in 2023 being less permissive for borrowers relative to 2022.
• Investor pushback frequency far exceeds 2022 levels if add-ons are excluded (67%), and even more so if A&Es are also excluded (81%). Investors focused on value leakage, pricing and yield protection, and leverage risk-related covenant terms for pushback.
• Our Flexibility Scale shows decline in “day 1” general purpose debt, restricted payments, and investments capacity compared with 2022. However, increases were seen across the board in Q4 2023 compared with earlier quarters, and we expect this trend to continue if the market for new money deals becomes more active.
• Qualitatively, covenants were more protective for lenders across the board in 2023 compared with 2022. A minority of terms have trended toward being more borrower-friendly, or remained at least unchanged, giving borrowers some scope for optimism going into 2024. We discuss how specific covenant terms have evolved in 2023 in greater detail in part 2.
• A&Es and refinancings will continue to make up a significant portion of the market, with 2025 and 2026 maturities coming into view. Covenants for those deals are likely to look similar to prior years. In 2024, reductions in interest rates may bring a rush of supply of new money deals to the market, but demand for quality deals and competition from direct lending may lead to weaker covenant terms. However, if rates remain elevated, 2024 may very well be 2023 all over again.
• Controls around value leakage became more restrictive in 2023: As the presence of multiple restricted payment builder baskets declined, permitted investments ratio baskets were less permissive and use of protective “J. Crew” blockers markedly increased.
• Borrowers as a whole had less room for gaming ratio and EBITDA calculations in 2023. The ability to add back uncapped cost savings and synergies, exclusions of revolving debt from ratio calculations, and use of “super-grower” baskets all declined compared with 2022.
• Pricing and yield protection: In a rising interest rate environment and general market volatility, investors were keenly focused on protecting their yields. 101 soft call protection was frequently included, with sunset periods of between six and 12 months. There were longer MFN sunsets in 2023, with other carve-outs and limitations to MFN largely scaled back.
• 2023 arguably marks the year when Chewy protection established itself in a firm minority of leveraged loan deals. Of 2023 deals that exempted non-wholly owned subsidiaries from granting credit support, 25% included Chewy protection to prevent the erosion of credit support.

Reorg’s Proprietary Flexibility Scale

Our Flexibility Scale measures capacities available for general debt incurrence and value leakage on “day 1,” that is, immediately upon closing of the transaction. The chart below shows how capacities for additional senior secured debt, additional structurally senior debt, value leakage to unrestricted subsidiaries and dividends have declined in 2023 when compared with 2022.

Unlock comprehensive insights by downloading the EMEA Leveraged Loans Wrap 2023 now and delve into the complete report.

For more reports and guides by Reorg, please click here.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and X.

Download the full report now!

Daily Rates and Online Businesses Support Growth in Global Gaming Companies in Third Quarter While Retail Decelerates, Leverage Declines Across Most Borrowers, Interest Coverage Holds up

Reorg is launching a quarterly global report focused on the gaming sector, highlighting key data points and developments relevant to high-yield and leveraged loan issuers. To see the report in a print-friendly format, click HERE. A relative value discussion will follow.

Despite subdued consumer confidence, the global sub-investment grade gaming market continues to demonstrate resilience, posting continued growth in the third quarter. However, a closer look reveals emerging signs of deceleration.

In Reorg’s Gaming Sector Review, our team of credit analysts delves into critical data points and industry developments tailored for high-yield and leveraged loan issuers. Our comprehensive report explores advancements in key sectors, covering U.S. and Asian casinos, online gaming, sports betting, gaming technology, and the European gaming landscape.

Equip yourself with data-backed insights for informed decision-making – download the full report today!

For more reports and guides by Reorg, please click here.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and X.

Register Now!

Reorg will host another episode of our deep-dive webinar series on Jan. 10, 2024. BVI Medical, a U.S.-headquartered manufacturer of eye surgery products, is struggling with an overlevered  balance sheet and persistent cashburn, which has caused its liquidity to dwindle, while its maturities are edging closer. As a result, the group looks likely to need additional support from sponsor TPG Capital to fortify liquidity and create a sustainable capital structure.

Join our team of experts for a deep dive into the causes of BVI’s underperformance, how the sponsor might deal with the group’s capital structure and what the potential outcomes are for lenders.

Panelists:

• Robert Schach, deputy managing editor, EMEA Credit
• Chetna Mistry, senior legal director
• Wayne Jambawo, credit analyst

You can find recent analysis on BVI HERE. 

Attendees can submit questions during the webinar or email them in advance HERE.

Webinar details:

When: Wednesday, Jan. 19, at 3 p.m. GMT/10 a.m. ET 

Registration: To register for the webinar, click HERE. 

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and X.

Exploring current themes and what lies ahead for the primary and distressed markets.
In-person only event at the Biltmore, Mayfair.

November 2, 2023
3:30 PM-8:00 PM

You’re Invited! If you haven’t registered yet, we cordially invite you to join us.

Agenda at a Glance

• Registration: 3:30 – 4:00 p.m.
• Welcome by Global Head of Editorial, Mario Oliviero: 4:00 – 4:05 p.m.
• Performing Credit Panel: Debut Issuers Return as Sponsors and Investors Embrace New Normal, moderated by Bart Capeci, including audience Q&A: 4:05 – 4:55 p.m.
• Spotlight on ESG by Luke Wood: 4:55 – 5:05 p.m.
• Distressed Panel: Lenders Take Charge as Sponsors Run Out of Options in High Interest Rate Market, moderated by Magnus Scherman, including audience Q&A: 5:05 – 5:55 p.m.
• Cocktails, Canapes and Networking: 5:55 – 7:45 p.m.

Bart Capeci will moderate the performing panel ‘Debut Issuers Return as Sponsors and Investors Embrace New Normal’ featuring guests Camille Mcleod-Salmon from Fidelity International, Jamie Cane, CFA from Muzinich & Co, Natalie Day Netter from J.P. Morgan and Pieter Staelens from CVC Capital Partners.

Magnus Scherman will moderate the second panel ‘Lenders Take Charge as Sponsors Run Out of Options in High Interest Rate Market’ which will be moderated by Magnus Scherman. This panel includes experts Christian Herrmann from Polus Capital Management, Gani Diwan from Triton Partners, Sam Whittaker from Lazard and Toby Smyth from Simpson Thacher & Bartlett LLP.

In-person only attendance for credit professionals in London.
Register today for great content and networking over cocktails and canapes.

We send a weekly roundup of Reorg content ranging from breaking news to in-depth financial and legal analysis as well as the latest podcasts that you can listen to and webinars that you can register to attend. Sign up to Reorg on the Record here.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and Twitter.

Chinese regulators take further steps to cut down payments for home buyers and encourage banks to lower interest rates on existing mortgages, according to joint statements issued by the People’s Bank of China and National Administration of Financial Regulation on Thursday, Aug. 31. The minimum down payment will be uniformly reduced to no less than 20% for first home purchases and no less than 30% for second home purchases. The lower limit of mortgage interest rate for second home purchase had been adjusted to the level of related LPR+20 bps while the lower limit of mortgage interest rate for first home purchases remained at the level of related LPR-20 bps.

India’s GDP surged by 7.8% in April-June, surpassing predictions of 7.7% and up from 6.1% in the previous quarter and marked the highest in four quarters, driven by strong services sector and government capital spending. However experts suggest faster expansion in the first half of the financial year might give way to slower growth in the latter half, Nikkei Asia reported.

Shanghai Composite Index went up 0.34% to 3,130 as of 2:04 p.m. Beijing Time. Japan’s Nikkei 225 Index went up 0.28% to close at 32,711, while Australia’s S&P/ASX200 went down 0.36% to close at 7,279. Hong Kong market is closed today due to No. 9 Typhoon.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and Twitter.

An Overview of the Sustainability-Linked Bond Market

Following the issuance of the first European sustainability-linked high-yield bond by Paris-headquartered aluminum maker Constellium in 2021, the European high-yield SLB market has grown considerably. New issuance in the first half of 2023 was €4.2 billion, nearly double the €2.8 billion issued in the first half of 2022. While it is tempting to attribute this increase to a heightened awareness of sustainability among issuers and investors, it needs to be considered in the context of the growth in the size of the European high-yield bond market as a whole. Within Reorg’s coverage universe, a total volume of €33.3 billion of European high-yield bonds was issued in H1’23 – more than double the €15.5 billion volume of bonds issued in the same period last year. Consequently, the SLB market has maintained a similar overall position in H1’23 in terms of share of the European high-yield bond market compared with the same periods in 2022 and 2021. SLBs made up 13% of H1’23 European high-yield bonds compared with 15% in H1’22, 11% in H1’21 and 13% in 2022 and 16% in 2021.

In terms of the number of SLB deals, the picture is slightly different. While five SLBs were issued in each of the first halves of 2023 and 2022, there were 15 SLB deals in H1’21 and only one in H2’22. So while the size of the SLB market has grown, its share of the broader European high-yield bond market has remained relatively constant, with the number of SLB deals in any period fluctuating with the broader market. Although we would have liked to see SLBs grow their share of the broader European high-yield market, we’re happy to settle for a show of resilience in a turbulent market.

Download the report here.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and Twitter.

Every quarter, our Americas Performing Credit Research team compiles a comprehensive primary report showcasing key highlights from the preceding quarter.

Download the whitepaper.

The unusual market conditions in the second quarter, discussed in more detail in the report, were not associated with any obvious across-the-board improvement in covenant quality. As deal volume picked up, the second quarter’s high-yield issuances included several sponsored LBO deals, which generally featured aggressive covenant packages. However, in a number of deals, investor pushback resulted in meaningful improvements in covenant protections for noteholders, potentially indicating a more hospitable climate for noteholders seeking to reduce risk through stronger covenants.

In this report, our team highlights deals by Copeland, Cvent, Citrix/Cloud Software, Univar, MoneyGram and more. Also, we suggest that there may be opportunities for investors to seek better covenant protection in the current market.

For a detailed analysis, the full report can be downloaded below.

Register for the Primary Market Insights Webinar on July 26 to hear about our findings in further detail here.

The European leveraged finance primary market recovered from its 2022 lows during the first half of this year. Term loan B amend-and-extend transactions, add-ons and refinancings formed the bulk of issuance and helped to push out maturities but resulted in higher interest costs and squeezed interest coverage ratios.

The second half of this year is expected to see similar activity, with high levels of primary issuance and large investor appetite for the high yields on offer, but M&As will remain suppressed. Interest rates remain stubbornly high and new supply will continue to be limited given private equity firms are unwilling to sell portfolio companies at valuations below their expectations.

We examine the bond and loan issuance trends from Jan. 1 through June 30, 2023, using data available on Reorg platforms.

High-Yield Bond Issuance Doubles Amid Rate Hike Fears

Within Reorg’s coverage universe, a total volume of €33.3 billion has been issued in the European high-yield bond market in the first half – more than double the €15.5 billion volume of bonds issued in the same period last year. A major upswing in issuance came in May this year, during which €11.2 billion of paper was issued, double the volume of the prior two months combined. Issuance volume in the month was dominated by names at the highest and lowest end of the sub-investment grade rating range from BB+ to B-. The bulk of the issuance was within the first two weeks of the month, coinciding with an expectation of an increase in rates set by the European Central Bank and the Bank of England, which came on May 10 and May 11, respectively. With this in mind, we could expect to see a similar wave of conveniently timed issuances should inflation expectations remain elevated, prompting a need for further increases in rates set by the central banks.

Read the full article here.

Register for the Primary Market Insights Webinar on July 26 to hear about our findings in further detail here.

If you would like to be panelist on any upcoming webinars, please contact marketing@reorg.com, and if you would like to be notified for the upcoming webinars, sign up for Reorg on the Record.

To keep up on the latest coverage with Reorg, follow Reorg on LinkedIn and Twitter.

Last night, Reorg was recognized as 2023 Best Data and Information Provider at the US Credit Awards 2023, hosted by Hedgeweek and Private Equity Wire.

This award is an exciting milestone as we continue to build awareness that Reorg’s solutions cover the full credit lifecycle. ive thanks and congratulations to the team at Reorg who continue to push boundaries and bring clarity to the opaque credit markets.

To learn more about Reorg’s offerings for the leveraged finance community, visit the website.