LONDON, Feb 28 (Reuters) - Israeli furniture maker Keter Group’s recently allocated €320m add-on loan has broken through par on Europe’s secondary loan market, gifting over 3 points of profit to investors willing to take a punt on one of the trickiest loan syndications so far this year.
The loan was quoted at 100.6% of face value on February 28, having allocated at 97 OID on February 9, according to Thomson Reuters LPC data.
Booking some 306bp of profit in under three week has made it one of the most profitable loans raised so far this year.
“Who would have thought it? Keter’s loan has come a long way in a very short space of time but it is a hot market so something quoted below par and performing well will make people take a second look and be more motivated to do it,” an investor said.
It is a welcome break to investors that are struggling to find decent yield in a very technical market where most deals allocate at par and trade up on the break, as demand far outweighs supply. At 425bp over Euribor, with a 1% floor, it is also one of the more generously priced credits.
The loan backed Keter’s acquisition of Italian peer ABM Italia and added to Keter’s existing €690m term loan raised in October 2016 to back its buyout by private equity firm BC Partners and Canadian pension fund manager PSP Investments.
Europe’s secondary loan market has been on fire since the second half of 2016.
Europe’s top 40 leveraged loan composite peaked at an all-time high reached 100.94 this month, a level not even seen before the financial crisis. The closest the composite had previously reached was 100.72 on April 20 2007, according to TRLPC data.
In this environment, most loans have traded over par, but Keter bucked the trend.
After its buyout loan allocated in October at 99.5 OID, the bid compressed due to issues surrounding the syndication process that left investors awarded more paper than they bargained for, despite scalebacks on overinflated orders, which impacted liquidity on secondary.
Investors also had to get comfortable with the company's growth story, buying into a long term strategy.
“There are not too many €1bn deals around and to do it for a company which didn’t trade well initially was quite brave. The investors that went into it felt confident and thought it would trade well, albeit not as quickly as it did,” a senior loan banker said.
“The perception previously was that it was name that didn’t trade well and now that perception has been altered.”
Keter produces a wide range of consumer goods including indoor and outdoor furniture, home accessories and hardware products. (Editing by Christopher Mangham)