Wed 01/04/2023 09:44 AM
Share this article:
December 2022 saw the year end in a very different mood than when it began. In January, about €9.8 billion of high yield bonds and €20.9 billion of leveraged loans came to market. Granted, that was about half of the new issuance volume in January 2021, as even then the market was starting to get a case of the jitters. Then came the war in Ukraine, rising inflation and interest rates and by December things looked considerably more bleak. Total new bond issuance for the month was at €1.9 billion and loans were at €3.4 billion, and even that was considered relatively active compared to the preceding few months.

The decline in volume only tells part of the story, however. Debut issues are essentially gone from the market, with only seasoned issuers putting their heads above the parapet, principally to refinance existing debt. Bond yields are frequently in double digits. Aggressive covenant terms still feature, but many issuers are opting to keep largely with what was in their previous deals to avoid a difficult marketing process. And debt buybacks and asset sales are options that companies are actively exploring to deal with their problems.
Event Driven Coverage

Stressed Credits Analysis

Adler Group

Distressed German real estate company Adler Group asked holders of €3.2 billion of its unsecured non-convertible notes to consent to the incurrence of €937.5 million of new senior secured debt to help repay debt maturing in 2023 and 2024. Adler reported that it had the support of more than 75% (the requisite amendment threshold) of holders of three of the six series of notes, but a group representing more than 34% of the unsecured notes due 2029 was objecting to the proposals, and the proposals needed to be approved by each series of noteholders.

We examined the proposals in detail in our legal analysis available HERE, noting that the holders of the 2029s may well hold a blocking position. Following publication of our report, Adler announced that while 78% of all the bondholders participating in the consent process approved the changes, only 57.7% of participating holders of the 2029s did. Accordingly, Adler now plans to use an alternative method to implement the changes, such as a U.K. restructuring plan, company voluntary arrangement or a German StaRUG process, in order to cram down the objecting 2029 holders. All of these alternatives are examined in our legal analysis. We will continue to monitor the situation as it develops.


Spanish pizza franchise Food Delivery Brands (fka Telepizza) is looking to restructure, having appointed advisors in November to evaluate potential options for its capital structure. Its owner, KKR, is reported to have proposed a 75% haircut to bondholders in exchange for providing additional equity. Bondholders obviously are not happy about that, at least not the 75% haircut. In any event, Telepizza needs to do something as it may run out of cash in the third quarter of 2023 according to our cash flow model. KKR is also reportedly considering a sale of Telepizza following a refinancing. If that happens, it may trigger a change of control put at 101% under the bonds (assuming they are still outstanding and the leverage-based portability feature is not met). Our change of control analysis for Telepizza is available HERE.

Performing Credits Analysis

Neptune Energy

Italian energy company Eni is reported to be interested in acquiring Neptune Energy, the London-listed oil and gas explorer. This raises the question whether that might trigger the change of control clause in Neptune Energy’s bonds, forcing it to offer to repurchase them at 101%. However, the change of control clause in the bonds has a ratings downgrade double trigger, which may make a noteholder put option less likely. See our change of control analysis for Neptune Energy HERE.
Bonds Primary Market

The European high yield bond market saw a brief flurry of life in December before closing for the holiday period. In keeping with the tone of the market for most of the year, only seasoned issuers were willing to brave current conditions and few were willing to risk the marketing process by bringing in new aggressive terms. All of the bonds were used to refinance existing debt, including acquisition debt, with one (Iliad) also for general corporate purposes.

Of the four bonds coming to market, one (888 Holdings) was a tap issue with no new covenant terms (although the covenants in the original bond were reasonably aggressive), one (Intrum) had only minimal changes and one (Iliad) was high-yield lite, with almost no covenants to change. This left one (House of HR) to bring an aggressive covenant package to the market. The fact that it upsized by more than a third during marketing indicates that there is still demand (albeit at a yield of more than 10%) for the right credit, despite the covenant terms being offered.


Swedish credit management company Intrum priced €400 million senior notes due 2028 to yield 10% - the tighter end of initial price guidance. The terms of the 2028s are substantially similar to those of the existing 4.875% senior notes due 2025 issued in August 2020, except that the fixed amounts of most baskets have increased to reflect the increase in EBITDA since the 2025s were issued and increased calculation flexibility was added. Neither of these changes are particularly controversial, though.

888 Holdings

Gambling group 888 Holdings priced a €335 million (upsized from €200 million) tap of its existing senior secured fixed rate notes due 2027 and senior secured floating rate notes due 2028.  There were no material changes to the covenant terms between these new add-on notes and the existing 2027s and 2028s. Note, however, that when marketed in July, the original issuance of €400 million fixed rate notes due 2027 and €300 million floating rate senior secured notes due 2028 faced significant investor pushback, with investors focussing on reducing the scope for value leakage, debt incurrence and to curtail calculation flexibilities (discussed on our EMEA podcast HERE).


France-based telecoms operator Iliad priced its €750 million senior unsecured notes due 2027. The notes are high-yield lite and do not have traditional high-yield covenant restrictions on incurring unsecured debt, making restricted payments or investments, asset sales or the use of proceeds from asset sales. The notes are unsecured, are not guaranteed by any of the issuer’s subsidiaries and have a weak negative pledge that only applies to the issuer and certain of its subsidiaries. Our covenant analysis on Iliad’s senior unsecured notes is available HERE.

House of HR

The most aggressive covenant package of the month appeared when Belgian human resources company House of HR returned to the market, pricing €415 million of senior secured notes due 2029 (upsized from €300 million) to yield 10.5%. The issuer had attempted to raise €425 million in September in connection with its acquisition by Bain Capital, but the offering was placed on hold and a bridge facility (to be repaid with the proceeds of the notes) was used instead.

The notes feature a higher amount of capacity to prime bondholders, pay dividends, and transfer assets to unrestricted subsidiaries compared to European market average ‘‘Day 1’’ capacities for 2022. The biggest risk comes from the potential for value leakage, which is high by market standards and exacerbated by the presence of off-market features, including a leveraged loan style ‘‘Available Amount’’ basket, as well as the absence of the customary 2x FCCR condition to access the CNI builder basket. Our covenant analysis on House of HR senior secured notes due 2029 is available HERE.

A summary table of bonds launched in December is below:
Credit Country Sector Amount Issue Price / Coupon Offering Use of Proceeds
Intrum Sweden Industrials €450M 97.02, 9.25% SUNs 2028 Refinancing
888 Holdings U.K. Consumer discretionary €182M
84.5, 7.558%
87, E+550
SSNs 2027
SSNs 2028
Iliad France Communications services €750M 100, 5.375% SUNs 2027 Refinancing/General corporate purposes
House of HR Belgium Industrials €415M 92.826, 9% SSNs 2029 Refinancing
Loans Primary Market

The European leveraged loan market also saw its share of pre-year end deals. As with bonds, borrowers were primarily looking to refinance existing debt, although one (Safic-Alcan) also funded an acquisition. Parques Reuinidos, ASK Chemicals and Altice International all upsized their deals, showing that, as with bonds, there is still demand for the right credit.

One focus was pushing out maturities, with Altice International extending the maturities of its €1.7 billion equivalent term loans B due 2025/2026 to 2027, in line with the maturity of its new €400 million term loan. ASK Chemicals is refinancing its existing term loan and RCF which are maturing in 2023, although it didn’t announce the expected maturity of the new loans, which are expected to close in mid-January 2023. KronosNet’s €95 million term loan B add-on (fungible with its €400 million existing term loan B maturing in 2029) will partly refinance its existing €400 million term loan A (priced at Euribor+550 bps), although that matures in 2027 with two one-year extension options, so extending its debt maturity profile may not have been the primary driver.

There was, however, one notable exception to the trend of extending maturities - Spanish amusement park group Parques Reunidos refinanced its existing term loan B2 with a new TLB3 having the same maturity (September 2026) and the same covenants as the TLB2, the big difference being the Euribor+525 bps interest rate on the TLB3, compared to Euribor+750 bps on the existing loan. It is one of the few companies managing to refinance its debt at a lower interest rate, although the debt being refinanced was incurred in 2020 to help see it through Covid lockdowns and so the margin there is a bit of an outlier. The €970 million TLB it incurred in 2019, which remains outstanding, bears interest at Euribor+375 bps.

A summary table of loans launched in December is below:
Credit Country Sector Amount Maturity OID/Margin Use of Proceeds
Safic-Alcan France Chemicals €470M 7Y 93, E+512.5 Refinancing/Acquisition
Parques Reunidos Spain Consumer discretionary €250M 4Y 96.5, E+525 Refinancing
ASK Chemicals Germany Chemicals €225M N/S N/S, E+675 Refinancing
KronosNet Spain Information technology €95M 7Y 92, E+575 Refinancing
Altice International Luxembourg Communication Services €400M
98, E+500
98, S+500
98, E+500
888 Holdings U.K. Consumer discretionary $75M 6Y 85, S+CSA +525 bps Not specified
House of HR Belgium Industrials €177M 7Y 92, E+575 Refinancing
Team.Blue Denmark Information technology €60M 6Y 93.5, E+370 Refinancing

To see our analysis or ask any questions regarding any of the above loans, please click HERE. You can get access to this analysis if you have a copy of the senior facilities agreement or the term sheet.
Covenant Trends

While each distressed company will have its own particular issues, distressed companies as a whole tend to have similar needs, particularly regarding raising liquidity and restructuring their debt. It’s not surprising then that two of our covenant trends reports this month are relevant in the context of the market conditions that we’re seeing now.

Debt Buyback Provisions in European Leveraged Loans

The current rising interest rate environment has resulted in many European leveraged loans trading at a discount. This provides an opportunity for healthy borrowers to buy back their loans below par, allowing them to deleverage cheaply and build equity value. They are also of interest for distressed companies in that debt buybacks are typically an important step in Serta uptiering transactions. Debt buyback provisions evolved during similar periods following the global financial crisis of 2008/9 and during the height of the Covid pandemic. We look at the current state of these provisions, which have been controversial to the extent they allow borrowers to repurchase debt on a non-pro rata basis, contrary to the generally embedded principle of equal treatment of lenders. You can access our debt buyback report HERE.

Covenants 101: What Constitutes ‘All or Substantially All’ Assets under New York Law

In the current economic environment, companies are exploring their options to raise liquidity and restructure existing debt. Some of those options include selling assets or transferring them out of the restricted group bound by the company’s loan and bond documents. Depending on the size of the assets involved, this may raise the question whether a proposed disposition constitutes a sale of “all or substantially all” of the company’s assets, in particular for purposes of the merger covenant and the change of control covenant.

As the great majority of European high yield bonds are governed by New York law and the covenants of a substantial number of European leveraged loans are interpreted in accordance with New York law, we looked at the relevant case law in the United States. Despite the desire for a “consistent, uniform interpretation”, a bright line test as to what constitutes a sale of substantially all assets is yet to emerge. Accordingly, our report examines the quantitative and qualitative factors considered by the courts and sets out general principles to be used in analyzing a particular factual situation. You can access our substantially all assets report HERE.

European High-Yield Covenants Pushback Tracker: EBITDA Adjustments on Investors’ Radar

As we’ve already noted, the markets have been increasingly selective about the credits and the covenant terms that they are willing to accept. One consequence of this is that investors are pushing back during the marketing period on covenant provisions they find unacceptably aggressive. A primary area of focus has been add-backs for potential cost savings and synergies in the calculation of covenant EBITDA, in particular whether they are capped in amount and/or time period for realization. December’s High-Yield Covenants Pushback Tracker looks at the percentage of deals in 2022 that had caps and the number of deals that added caps or tightened those caps during the marketing process. You can access our covenants pushback tracker HERE.
Other Resources

RCF Tracker

Our RCF tracker, which includes more than 215 companies and is updated every week with new information and new borrowers, is HERE. This tracker aims to provide an overview of companies that have RCFs along with high-yield bonds in their capital structures. The tracker includes the committed and drawn amounts of RCFs as well as the corresponding financial covenants.

Our webinars and podcasts are available HERE. You can also subscribe to our podcasts on SoundCloud, iTunes and Spotify.

Our Covenants Weekly Recaps are HERE.
Share this article:
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2024 Reorg Research, Inc. All rights reserved.
Thank you for signing up
for Reorg on the Record!