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European High-Yield Deal Gets Revamp

German steel company Klöckner's €260 million new issue was the only transaction to be priced in the European high-yield market last week, and only then after getting revamped and repriced by underwriters J.P. Morgan and Barclays Capital.

German steel company Klöckner's €260 million new issue was the only transaction to be priced in the European high-yield market last week, and only then after getting revamped and repriced by underwriters J.P. Morgan and Barclays Capital. The deal was downsized from €350 million, the covenants were tightened and it was priced above the sub-10% initial talk by coming with a 10.5% coupon.

Klöckner's offering had been postponed from the week before along with South African mobile operator Cell C's €625 million new issue (BW, 5/2). A new pricing date for that sale has not been announced.

Klöckner got its deal done by eliminating a €50 million dividend payment and injecting an extra €40 million of equity to shrink the deal by €90 million. In addition, the restricted payment test was reduced from €25 to €15 million and permitted investments lowered from €65 to €50 million. "This is a much nicer deal than what was being offered before," commented a London-based investor who participated in it.

Derrick Noe, cfo of Klöckner, was not available to comment by press time.

Cell C's deal, meanwhile, is still being restructured. In its current form it includes two senior tranches--one €250 million piece for European investors and another $200 million to be priced in the U.S.--along with a $200 million second lien piece. However, investors still aren't biting. "It is totally unclear how second lien would stack up in South African bankruptcy proceedings," observed one skeptical investor. Citigroup is the sole underwriter on the deal. Andrew Watkins-Ball, head of the high-yield syndicate at Citi, did not return calls by press time and other officials declined comment.

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