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Corporate Bonds

Levfin revs up as IG idles

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European high yield bonds and leveraged loans have maintained interest this week for investors, despite a lack of deals, as other parts of the corporate market have finally been lulled to summer slumber.

The high yield market showed further signals that it is revving the engines ahead of September. European retail high yield funds have recorded inflows in five of the past six weeks. According to Bank of America Merrill Lynch researchers, last week’s increase came not just from local demand but also global investors.

The tally of fund inflows this year so far sits at some €11bn when adding the cash inflows of exchange traded high yield funds. That is higher than cash deposited into government bond funds and just slightly below commodities.

CreditSights said that all high yield sectors in its index generated positive returns last week, taking the year-to-date figure to 4.99%.

Investors this month have recovered their hopes that primary issuance could return to life in earnest after the summer break. This is despite new high yield bond sales falling 48% behind 2015’s numbers for the first half of the year. The market from July to mid-August has reversed some of damage and the drop in issuance now stands at 37%, Fitch Ratings said on Wednesday in a special report.

The month's third week has created little investment grade corporate bond supply. By the standards of most Augusts this has been a busy month but the summer lull has truly kicked in.

There has been just one investment grade bond deal, as Intercontinental Hotels on Tuesday ensured that this week will not be a complete whitewash. Unsurprisingly, given the market's purple patch this month, Intercontinental chose to issue in sterling.

Since the Bank of England announced its own corporate bond purchase programme the sterling corporate bond market has sprung to life. Intercontinental issued a £350m 10 year bond and printed with around 5bp new issue premium and around 2.5 times oversubscription. That is not bad going in a month when most market participants are on holiday.

The European leveraged loan market is not quite fully invested in a vacation yet, but perhaps a ‘staycation’. Ziggo closed its term loan refinancing after massively increasing it from $1.6bn of loans to over $3bn. The €750m euro term loan was increased to €2.59bn as investors piled in to the Dutch telecom firm, two weeks after the European Commission cleared its merger with Vodafone’s Dutch unit.

CreditSights’ analysts wrote in a note this week that they were positive about the merger and the Dutch market outlook. “We would recommend investors looks closely at this new supply as an opportunity to take exposure to Ziggo,” they said.

Ziggo also increased the $750m dollar term loan to $1bn. Several investors said it was the largest increase on a loan in allocation they had witnessed in the market. “Credits like Ziggo are frankly just like utilities now,” an investor noted. “How can a household now go without broadband?”

Elsewhere Riemser, the German pharmaceuticals firm owned by French private equity house Ardian, finally closed its €256m term loan dividend recapitalisation on Tuesday afternoon. The loan closed in line with guidance at 550bp over Euribor, offered at 98.5 with a 0% floor. There are a further €20m of capex and €10m revolving credit facilities, priced at 450bp over Euribor. Senior secured leverage is 5.3 times based on last twelve months Ebitda of €46.6m.

UBS was left lead, Mizuho and SEB mandated lead arrangers.

The pipeline is thin for the rest of the month following these deals. Given the surprise bounceback in leveraged loan issuance following the Brexit vote, a winding down of new issuance was viewed to be inevitable by many market participants.

“We are here and open in August, but the sell-side probably won’t be,” said another investor in London.

The European investment grade loan market has relied on South Africa’s Steinhoff to inject some life into it, with two acquisition financings providing plenty for banks to chew over. The retailer bumped up the size of its £452m bridge facility, underwritten by Crédit Agricole and UniCredit, to £460m to support a higher cash offer for UK discount retailer Poundland. It also took on a £2.1m bilateral facility with adviser on the transaction Investec. Last week, Steinhoff said it was lining up €3.8bn of loans to support its $3.8bn cash offer for US bedding retailer Mattress Firm.

Other European acquisition loans in the market include Melrose’s $1.25bn of debt for its acquisition of Nortek. A quick turnaround was expected in syndication with banks expecting to wrap up commitments this month.

Meanwhile Finnish Packaging firm Powerflute added to 2016’s slow trickle of refinancing deals, signing a £120m deal with Nordea and HSBC.

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:

Negative yields? Fear not, says Fitch, that’s what HY is for

‘UK not important enough’ to derail HY, says Dutch investor

'Crikey!': Ziggo term loan increase amazes market

Riemser set to leave European levloans near empty

Powerflute picks two banks for €120m refi

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