The first corporate PIK issue of 2016 appeared on Wednesday, but as a private placement. It was a €35m bond to fund the acquisition of Vivalto Santé, the French private hospitals operator founded by Daniel Caille.
A consortium of investment funds, including CDC International Capital, Arkea and Socadif, have bought the company, with Caille remaining a key board member to design its future expansion strategy. Tikehau and BNP Paribas Principal Investments were the underwriters of the PIK note.
Deals of such small size are always likely to be financed as private placements. But high yield bankers said sentiment in the speculative grade bond market had shifted since November, and PIK notes were no longer welcome.
“Any creepy structures will scare the buy side in a market with the volatility we are seeing these days,” said a senior leveraged finance banker in London.
“It is a hard time for any banker to recommend PIKs,” an investor said. “The European high yield market has grown and there’s room for different structures, in a way you could not see five years ago. But I’d say floaters are as far as you can go now.”
In November, the Istituto Centrale delle Banche Popolari Italiane, the Italian banking payments group, sold a €1.1bn dual tranche PIK bond, rated B by Standard & Poor’s, to finance its takeover by Advent International, Bain Capital and Clessidra.
ICBPI printed a €900m fixed rate non-call two year tranche to yield 8.25% in cash interest. Its €200m non-call one year floater was priced at 99 to yield 800bp over six month Euribor, which is floored at 0%. If interest is paid in kind, the rates would be 9% and 875bp, respectively.
Investors speaking to GlobalCapital at the time praised the bond for being innovative and for its unconventional coupon structure.
Also, Autodis, the French car parts maker, priced in October a €237m five year bond, rated B3/CCC+, with a 9% cash coupon and a 9.75% PIK coupon. Yield to maturity was 9.126% with the offer price at 99.5.
ICBPI and Autodis's PIK notes were trading on Thursday in the 97-96 area.
“Any new PIK or subordinated notes are off the table now,” said a high yield banker on Thursday. “I don’t think we will see any of it, even in a more stable market.”
One banker said any PIK deal that needed to be placed in the next six months would be placed privately, if it was up to €300m in size.