A year of extremes
In a year when the very notion of high-yield bonds came under scrutiny, given some of the levels at which issuers were able to raise funds, there were still several other hairier stories that required careful handling. For its ability to manage both extremes, Goldman Sachs is IFR's Europe High-Yield Bond House.
It was an unprecedented year for the European high-yield market, when the distortion of credit markets by central banks produced the ultimate oxymoron: negative-yielding high-yield bonds.
But while some Double B credits priced new issues at record-breaking low yields of below 1%, European Triple C issuers found themselves neglected by a buyside gravitating towards safer credits as the cycle grew longer in the tooth.
In such a bifurcated market, Goldman Sachs was there to push the boundaries of the market for Double B borrowers, while also helping riskier credits navigate an increasingly selective investor base.
"We've shown dominance in testing what the market can and can't do. But the storied credits are where we've built our franchise this year," said Michael Marsh, head of EMEA leveraged finance at Goldman.
UK data provider Kantar's €3.08bn-equivalent leveraged financing backing its buyout by Bain Capital proved to be one of those trickier deals.
A lukewarm response from the loan market meant Kantar was forced to make wholesale changes to its covenant package, and to cut the loans component to US$1.4bn-equivalent from US$2.1bn.
Goldman, as one of two active bookrunners on the bigger senior secured piece, had to encourage the bond market to shoulder the load. It did so.
A seven-year senior secured note raised €1bn, which together with a €475m senior unsecured tranche, meant the combined amount raised was more than double the initial target of €700m and ensured that the overall debt raised for the buyout was unchanged.
"Kantar wasn't the easiest credit story," said Dominic Ashcroft, co-head of leveraged finance capital markets, EMEA at Goldman. "And US investors weren't jumping to buy Single B loans. The high-yield market on the secured side stood up.
"We priced €1bn in senior secured bonds. In prior years, the high-yield market might have complained that if the loan market wasn't there, why should they take it?"
Chemical company CABB's €640m three-part bond refinancing package also provided an example of Goldman underwriting and steering a riskier credit through the market.
CABB, rated B3/B–, was seeking to refinance debt in a "must-do trade" at a time when investors were shirking the more cyclical chemicals sector for safer credits.
"CABB was an example of a credit where banks were shying away because of the sector. Goldman Sachs provided the company with certainty of execution and then distributed the risk," said Ashcroft. "Finding the liquidity for the deal meant we stood out."
Goldman, as joint lead bookrunner and ratings adviser, helped price the bonds despite market volatility and allowed CABB to significantly increase the weighted-average maturity of its capital structure.
But most grey hairs for Goldman's syndicate team came with Altice Luxembourg's €2.8bn-equivalent senior notes in May, when the bank was lead-left bookrunner.
Altice saw the bond as a crucial step in cutting its onerous debt burden and cleaning up its complex capital structure – as well as repairing its reputation with its investor base.
"Altice's bond was a pivotal point for the company, when it went from being a difficult credit to having full access to the capital markets," said Ashcroft. "That deal became a catalyst for Altice's equity improvement."
The transaction cut net debt at Altice's European operations to €27.5bn from €28.8bn at the end of 2018.
The notes also helped Altice achieve its aim of simplifying its debt structure into two units: Altice France and Altice International.
The notes included a highly unusual special optional redemption provision that allows Altice to exchange bonds for new subordinated debt issued by an Altice France subsidiary, provided that a majority of bondholders agree.
The deal also had the distinction of having the highest loan-to-value for a bond sold to the market.
"Altice was on a knife edge for its LTV, which was north of 90%," said Ashcroft. "It's now at 80%."
Since pricing in May, the deal has delivered a 23.4% return, the best of any high-yield bond issued in the European primary market in 2019.
Goldman was also there when Single B credits turned to the market in September to take advantage of the yield compression caused by the anticipated restart of the ECB's bond-buying programme.
"September was a great window for bonds, especially for more defensive TMT names like Salt, Altice, Eir and OTE," said Ashcroft. "We were ready and primed to hit the market."
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