Chemicals company Polynt is testing investor appetite for risk, offering a €300m five-year non-call two senior secured note, along with cash on its balance sheet, to fund a €474m gross dividend to its shareholders.
Although a dividend recapitalisation is typically seen as an aggressive strategy, this is not the first such issuance this year. About two weeks ago, Infopro Digital got investors on board for a €975m two-part senior secured note, comprising a five-year non-call one floating-rate note and a five-year non-call two fixed-rate tranche, of which €193m was earmarked for shareholders' distribution.
A leveraged finance banker away from the transaction said the transaction was aggressive not only for the use of proceeds but also its size and expected the new debt to carry an 8% handle based on the re-pricing of its existing debt in the secondary market after the announcement.
The company's €325m 4.375% November 2026 bond (BB–,B1) was last quoted at 8.2%, almost 100bps higher than at the start of the trading session, according to Tradeweb.
Proceeds from Polynt's new note, to be issued by SCIL IV and SCIL USA Holdings, will be used alongside €183.7m of cash to fund a dividend to shareholders as well as pay transaction related fees and expenses. The company is concurrently trying to upsize its super senior revolving credit facility to €105m to €85m.
"The dividend will only be paid to the extent management and board do not foresee an attractive M&A transaction, and will be strictly governed by the conservative levels allowed in the indenture," the company said in an investor presentation, noting that management continue to evaluate selective bolt-on acquisitions.
A global investor call was held this morning, with small virtual group meetings scheduled through Wednesday.
JP Morgan (B&D) is joint global coordinator and physical bookrunner alongside Goldman Sachs.
Proven debt reduction
The Italian company's pitch to investors is centred on its past ability to use strong operational performance to cut debt and that its debt burden post-transaction would still be below that of its previous public bond offering.
Management said the financial strategy related to leverage is aimed at "prudent" debt reduction over the time thanks to strong cashflow from operations. It noted that it had already demonstrated its ability and commitment to do so, by slashing net leverage to 1.8x as of March 2023 from 3.5x as of October 2021, when it raised €1.3bn-equivalent of senior secured notes in a dual-currency deal backing its acquisition by private equity firm Black Diamond.
After the trade, the firm estimates secured net leverage will be 2.4x and total net leverage 2.5x, based on adjusted Ebitda in the last 12 months to March.
The company said it maintains strong liquidity through its super senior revolving credit facility. It also has a long-dated maturity profile across the capital structure and that preserving operating liquidity is a key policy.
After the trade, it estimates that it will retain €126m of cash on its balance sheet, based on March accounts.
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