Stamford, Conn.-based Esselte Group Holdings' bondholders are concerned the J.W. Childs-owned office supplies manufacturer might breach its bank covenants after it posted below expected earnings. Leverage has increased from 3.4 times to 3.7 times debt to EBITDA, but unlike in the U.S., where bank covenants must be disclosed when a bond deal is registered with the Securities and Exchange Commission, in Europe such disclosure is the exception rather than the rule, according to a European high-yield banker.
The ¤150 million of seven-year, 7 5/8% bonds, only issued last quarter, dropped from the high-90s to the low-80s, before stabilizing around 87 last week. The lack of transparency makes for great uncertainty among investors. "It's difficult to assess whether 85 is an attractive level to be involved in the bonds, since the covenants on the deal are not revealed--without knowing what the covenants are, we can't assess the liquidity of the bond," said one high-yield fund manager in London.
The bank debt consists of a $90 million revolver, a $125 million "A" loan and a $100 million "B" loan, states Mark-It Partners/LoanX. The market history indicates the revolver has generally been quoted at 99-99 1/2 and the "B" loan is quoted at par. UBS leads the facility. Other lenders include Bank of Scotland, Barclays Capital, Credit Suisse First Boston and Royal Bank of Canada, according to Bloomberg.
"We haven't revealed the bank covenants, but are considering it," said an Esselte spokesman, adding that the firm would take such action only under advisement from its bankers at CSFB. Guy Douglas, head of high-yield capital markets at CSFB in London, was on vacation and did not return calls.