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Corporate Bonds

Corporate borrowers ignore summer slowdown memo

Two weeks into August and the anticipated summer slowdown is still not that slow, with big name borrowers continuing to test both the investment grade and high yield bond market, as well as bringing leveraged loans.

When Spanish broadcasting towers business Cellnex exited the visible pipeline last week, euro corporate bond issuance looked set for a three week break. But that only lasted until Wednesday this week, when Shell showed up. The Aa2/A rated oil supermajor fits the profile for an August issuer: A-rated and familiar enough for investors to opportunistically tap bond markets.

Shell is offering two benchmark tranches with 8.5 year and 12 year maturities. The issuer is hitting the euro market one day after rival BP tapped sterling investors for a £650m seven year deal.

BP’s motivation for issuing its first sterling deal since 2011 was clear as the issuer clinched pricing around 20bp inside its euro curve.

BMW achieved a similar result on Monday with its £600m six year transaction, continuing a run of deals in the currency.

While Shell has revived euro issuance, it is the sterling houses that have been busiest this August — and Barclays and BNP Paribas are both bookrunners on the Shell deal.

Sterling issuance had been moving at a steady clip in the days before the Bank of England’s unveiling last Thursday of a £10bn corporate bond buying programme. But with corporate QE slated for September, the deals have kept coming. At one trade a day this hardly counts as a surge in issuance, but a traditional summer slowdown it certainly is not.

In LBO Veritas

High yield bonds are also having a rare August, with more than €3bn worth of notes in euros and dollar priced last week. But the market’s busier than normal summer might prove to be the exception against this year’s trend of low issuance.

Veritas Technologies wants the European high yield market to give it a second chance. On Tuesday, the US software firm began marketing a €580m-equivalent secured bond. This would be the last leg of the debt package that supports its acquisition by private equity firm Carlyle — a buyout that investors rejected in November last year.

Veritas is roadshowing for $387m and €230m tranches of seven year non-call three senior secured bonds, with ratings of B1/B+.

On Tuesday, Standard & Poor’s said in a report that the imbalance between high demand and scarce new paper will remain a feature in the leveraged finance markets for the time being. The probability that “the supply and demand imbalance in the leveraged finance markets does not change anytime soon” is strong, S&P analysts said, even if European private equity firms have been in fundraising mode and are ready for leveraged buyout action — one of the key sources of high yield issuance.

Enterprise valuations are still high, however, and corporate borrowers often win when competing against PE firms, the agency noted.

Two acquisitions announced in August prove the point. ZF Friedrichshafen, the Ba1 rated German car parts manufacturer, is buying Haldex, an unrated Swedish peer. The operation will be funded entirely off the bond market.

And Cott Corporation, which tapped the high yield market on June 13, has eschewed bonds as it finances its latest acquisition. The US-Canadian drinks maker, with B3/B ratings, is buying S&D Coffee for $355m. But this time it will fund the purchase with incremental asset-based loans and cash on hand.

Conditions in the leveraged loan market remain benign this week, with several deals having closed. Dutch telecom firm Ziggo launching a $1.6bn loan refinancing package to become the largest deal active in the market, while Morrison Utilities Services could this week launch the first UK leveraged buyout since the Brexit vote.

Ziggo is bringing a €750m term loan refinancing. The deal also comprises a $750m eight year term loan ‘B’ tranche. The euro tranche is guided at 375bp over Euribor, the dollar at 300bp, both with a 0% floor, offered at 99.5. Books are set to close on Thursday, with allocations on Friday.

Ziggo is owned by European telecom giant Liberty Global, which announced plans in February to merge the firm with Vodafone’s Dutch unit in a 50/50 joint venture. Targeted leverage for the JV is between 4.5 to five times.

German industrial services provider Bilfinger allocated its €1.25bn loan package on Tuesday after tightening from initial price guidance of 550bp over Euribor, offered at 99 with a 0% floor. Its €700m term loan ‘B’ eventually allocated at 525bp, offered at 99.5 with a 0% floor.

Irish-domiciled Ion Trading, the electronic software firm, allocated its €200m dividend recapitalisation term loan at a tightened price also this week. The loan is priced at 350bp over Euribor, offered at 99.75 with a 1% floor.

But another dividend recapitalisation term loan for Riemser, the German pharmaceuticals firm, is yet to allocate after replies were due last week. The stable market conditions and undersupply has proved propitious for other such deals. Although they are often disliked by investors, several have been issued in the past few weeks.

Calm is at least gracing most corners of the investment grade corporate loan market.

Wannabe new lenders might have been disheartened by Dutch HR services firm Randstad’s announcement that it would use existing credit facilities to fund its $429m acquisition of US firm Monster Worldwide, operator of job site The company’s relationship lenders, on the other hand, will be enjoying another round of utilisation fees as Randstad snaffles yet another target after an acquisitive nine months.

On Monday, the market welcomed a new name as Progress-Werk Oberkirch, a German auto parts manufacturer, said it had completed its first syndicated loan with four lenders, one of which was a new relationship. The €100m revolving credit facility replaces most of the company’s outstanding bilateral agreements.

Others deals making progress during a sleepy August for investment grade loans include Melrose’s $1.25bn acquisition facility for its Nortek buy, with commitments due in next week according to a banker on the deal.

Elsewhere, Steinhoff has a £452m loan in the market for its £597m Poundland acquisition. Steinhoff said on Monday it has in mind $3.8bn of loans, including term loans and a $1.8bn bridge, to fund its acquisition of Mattress Firm, a bedding retailer which will give the South African group a foothold in the US.

Dan Alderson, derivatives editor +44 207 779 7311

Max Bower, leveraged loans reporter +44 207 779 8964

Silas Brown, niche currencies and private placement reporter +44 207 779 8689

Robert Cooke, investment grade loans reporter +44 207 779 8124

Jon Hay, corporate financing editor +44 207 779 7321

Victor Jimenez, high yield reporter +44 207 779 7379

Ross Lancaster, corporate bonds editor +44 207 779 7322

Elly Whittaker, loans editor +44 207 779 8361

Corporate financing coverage highlights:

BP keeps sterling groove steady, pricing well inside euro curve

Carlyle launches final HY piece of Veritas LBO jigsaw

Sponsor funds stocked but LBO issuance to remain slow, says S&P

Steinhoff lays down $3.8bn of loans for Mattress Firm

Four banks join PWO’s first syndicated loan agreement

Randstad leans on core banks for Monster buy

Ziggo markets $1.6bn refi ahead of Vodafone Netherlands merger

Morrison Utility launching UK LBO

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