European high-yield bankers took advantage of increasing stability to bring two debut names to the primary market on Monday.
PVC producer Kem One (expected rating B1/B/B) is marketing a €450m seven-year non-call three sustainability-linked senior secured bond to fund its buyout by private equity group Apollo. And UK building materials supplier SIG (expected ratings B1/B+) is out with a €300m five-year non-call two senior secured bond, proceeds from which will refinance debt.
"[The deals] illustrate in a way that the market is open for everything – one is an LBO, the other is a more opportunistic refi," said a banker. "However, they are both companies that have a bit of history around earnings volatility, while making good recoveries since then."
SIG is looking to "reset" its capital structure with the new high-yield bond. The company is looking to return to positive free cashflow following a difficult period in 2019, which was then exacerbated by the Covid-19 pandemic. SIG strengthened its balance sheet last year with a £165m equity raise and is now looking to refinance its private placements as well as a term loan.
Meanwhile, Kem One is also on a path to growth, after emerging from receivership in 2018, with a hope to continue that progress under Apollo's ownership. Global coordinator and joint bookrunner JP Morgan has sent out initial price talk of mid to high 5s for the new bond.
Joint global coordinators on SIG's bond are HSBC (B&D) and Barclays. SIG is wrapping up its roadshow on Wednesday, while Kem One is holding investor meetings through to Thursday.
Bankers say that the high-yield bond market has demonstrated more stability in recent weeks, thanks in part to better-than-expected third-quarter earnings, which has made it easier for investors to put a price on risk.
It also means that opportunistic issuers such as SIG have started to come off the sidelines to take advantage of improved conditions. However, other refinancing candidates are still waiting the volatility out.
"If you're accessing the market in the context of LBO or M&A, another 25bp–50bp more in cost of capital is not going to make that funding more unattractive, but some of the more opportunistic deals are still on pause for the time being until we see more of a recovery in the market," said the banker.
"But there's definitely starting to be agreement among many of our clients that the market is not necessarily going to go back to where it was pre-summer. Still, by any historical measure the market is still quite attractive, so most companies will get out and do financings now or in the future," he said.
There are expected to be a "handful" of deals in the European high-yield bond market this week. In addition to the two already announced, a healthcare issuer is expected to come to the market with a euro-denominated tap. Natixis is expected to be on that deal.
In the EM market, Israeli generic drugmaker Teva Pharmaceutical Industries has announced a US$4bn-equivalent dual-currency senior unsecured sustainability-linked notes offering while it continues to tackle a debt mountain.
The tenors of the euro notes will be 5.5 and 8.5 years. IPTs are in the low 4s and high 4s, respectively.
Since falling to sub-investment-grade, Teva has become a staple for high-yield investors. EM investors have become more interested too, given the yields on offer for a Double B credit.
Meanwhile, volatility has finally caught up with the loan market, with deals seeing pricing moving a bit wider and investors becoming more selective over which deals to invest in and the levels at which they do, said bankers.
Leveraged loan borrowers are thinking twice before launching opportunistic deals, after a €2.2bn repricing for Spanish telecoms company MasMovil was recently pulled.