Reorg on the Record: Supply chain problems halting the market’s bull run…| 10/20/21

Written by Robert Schach, Editor, Distressed Debt & Restructuing || The last couple of weeks seem to be an inflection point for the European leveraged finance market, with persistent supply chain problems, inflationary pressure and runaway energy costs finally halting the market’s bull run since the end of lockdown in Spring. Several new deals have slipped below par in secondary and, while primary issuance continues, deal flow seems to be slowing down. The rising caution is reflected in fund flows, with high-yield funds recording outflows for the last two weeks.

That suggests the easy refinancing conditions, which have characterized the primary markets for so long and kept distressed activity at bay, may be coming to an end. It will certainly make several touch-and-go refi prospects a lot trickier, with Haya Finance, Lowenplay and Raffinerie Heide all looking a little more difficult to pull off than a few weeks ago.

Several credits had already been struggling with rising input costs over the last few months, especially in the packaging sector where issuers such as Paccor, Weener Plastics and Kloeckner Pentaplast had been grappling with surging resin costs. They are finally managing to pass those through, but are now facing jumps in non-resin input costs. Rising gas prices in particular are proving a headache for the energy-intensive glass packaging sector, with Frigoglass and Bormioli bonds slipping.

Distressed activity is definitely picking up with NAC, Shearwater and Arvos loans changing hands recently, while Hilding Anders is heading for a covenant breach and a short seller attack on Adler Group looks set to stoke fears over valuations in the German real estate sector.