July Covenant Trends for Vallourec, Rubis Terminal, Serta Simmons

Vallourec must put together a new refinancing plan for its €1.7 billion RCF maturities due in February 2021 after admitting its planned €800 million capital increase and €800 million RCF refinancing were unsuccessful due to adverse market conditions linked to Covid-19. Continue reading for the Debt Explained and EMEA Core Credit by Reorg teams' covenant trends for July 2020, and request access to continue following these and other high-yield and distressed credits across EMEA. 

The French pipe manufacturer said it is in discussions with its reference shareholders and banks to decide a new refinancing plan, the details and timing of which remain unclear. While an amend and extend of the RCF lines remains a viable option, any additional security the group can grant against these lines is limited to €100 million as of June 30. Potential state aid may also help the group. However, it remains unclear if Vallourec will fit the criteria to obtain state aid reserved for strategically important French companies.

Our analysts discuss Vallourec’s options.

• Updated Covenant Analysis: Vallourec

French storage group Rubis Terminal announced on July 21 the acquisition of TEPSA, a Spain-based bulk liquid storage operator. TEPSA, controlled by Pétrofrance S.A., operates four coastal terminals in Barcelona, Bilbao, Tarragona and Valencia with 912,000 cubic meters of storage capacity dedicated to chemical, biofuel and petroleum products. The acquisition increases the size of Rubis Terminal by about 30%, the company said in its release.

Our analysts discuss the potential for the group to fund the acquisition.

• Covenant Analysis: Rubis Terminal

The high-yield market in July was marked by missed coupon payments, new and continued debt negotiations, restructurings, and creative covenant use to find new solutions for ongoing liquidity problems caused by the Covid-19 pandemic.

Both debut and repeat issuers have come to the market as lockdown restrictions were loosened. A trend of successful investor pushback continued, similar to June’s Thyssenkrupp Elevators issuance, showing that investors are paying close attention to covenants. Investors were focused on reducing dilution and priming risk, reducing the amount of value leakage permitted and obtaining stonger credit support, as mentioned in our Recent High Yield Covenant Pushback article.

We discuss covenant trends in the primary and secondary market in July.

• Primary Monthly Recap


• Secondary Monthly Recap

Our updated RCF tracker was published on Aug. 5. An updated version will be published on Tuesday, Aug. 11.

In our weekly Covenant Conversations podcast, Shweta Rao in London and Peter Washkowitz in New York spoke to Reed Smith leveraged finance and special situations partner Elizabeth Tabas about:

• Key takeaways from Serta Simmons and other U.S. case law;


• The state of play in leveraged finance documentation; and


• How distressed lenders can parse and "weaponize" documents.

Our weekly Coronavirus Impact Recap can be found HERE.