By Prudence Ho and Eleanor Duncan
LONDON, May 7 (LPC) - Europe’s leveraged loan market reopened for business last week for the first time since March as European lab operator Synlab and US data analytics firm Nielsen launched deals to reshuffle their capital structures and replace bonds with loans, but are paying up to do so.
Europe’s syndicated leveraged loan market has been closed since lockdown measures were imposed to try to contain the coronavirus.
Synlab launched an amend and extend process to push out loan maturities by two years and convert a portion of floating-rate notes to loans, while Nielsen launched an US$800m-equivalent term loan to refinance notes that was increased to approximately US$1bn prior to close on Thursday.
UK car auctioneer BCA Marketplace also recently raised a €70m add-on facility from a handful of mainstream loan investors.
“These deals show Europe’s syndicated leveraged loan market is moving in the right direction and is opening for business,” a syndicate head said.
Lenders and borrowers have anticipated its opening for some time, as it was slower to do so than its larger and more liquid US counterpart and the US and European high-yield bond markets.
The reopening of the CLO market two weeks ago, coupled with the easing of lockdown measures in some European countries has helped to revive the loan market and improve investor risk appetite, after a prolonged period of illiquidity and portfolio management.
Some €846.5m of CLOs were issued in Europe over the last week or so via Permira Debt Advisors, Apollo’s Redding Ridge Asset Management and KKR.
“The broader syndicated market wasn’t there over the last few weeks as every investor was busy managing their portfolios. I think that stage has passed,” said an investor. “If borrowers want to issue any add-ons or refinancings now, there should be a demand for that.”
A second syndicate head said: “More CLO issues are on the way and that will provide some support to the market.”
The latest loans are likely to prompt any borrower facing maturity issues to come to market, despite having to pay a pricing premium.
“Some companies will take an approach to do the refinancing now and lock in the certainty,” the second syndicate head said.
“If the market gets better by the time the soft call ends, they can reprice. If the market gets worse, then they are genius.”
Ba3/BB rated Nielsen launched a dual-currency loan to refinance 4.50% unsecured notes due October 2020. Both tranches — a US$550m term loan B and a €420m TLB — priced at 375bp over Libor/Euribor, at 98 OID.
The dollar tranche was increased from US$500m and the euro tranche was increased from U$300m-equivalent. Pricing was cut from 400bp over Libor/Euribor, while the OID was tightened from 97.
The dollar tranche includes a 1% floor and the euro tranche has a 0% floor. Both have a 101 soft call protection for 12 months.
Nielsen is paying significantly more than the last time it tapped the loan market in 2018. Then it secured a US$75m add-on term loan paying 200bp over Libor and a €171m term loan, paying 250bp over Euribor.
BCA’s €70m three-year facility led by Bank of America and KKR Capital Markets, priced at 550bp over Euribor, at around 97 OID.
BCA raised a £997m-equivalent dual-currency term loan B in September to back its acquisition by private equity firm TDR Capital. The euro portion of that TLB priced at 325bp over Euribor, at 99.75.
Synlab, rated B2/B+, wants to extend up to €450m of its 2022 TLB1 and has asked investors to roll their commitments into an amended 2024 TLB3.
It revised the pricing at the low end of initial guidance of 400bp-425bp over Euribor on Thursday, and tightened the OID to 99 from 99-99.5 at launch, with a 0% floor. That margin is higher than the TLB1, which pays 300bp.
With a margin uplift of at least 100bp and a stable risk profile of Synlab, most investors would choose the extension. “You don’t want to be left in the old tranche with limited liquidity,” the investor said.
Synlab is also asking a portion of investors in a €940m FRN to exchange into the amended TLB3.
Bond-to-loan exchanges were common from 2010-2013 and allowed vintage CLOs that were past their investment period to do cashless rolls.
“Let’s see if that becomes part of the new playbook. We’re dusting off old processes given the new environment,” a banker said.
Traditional bondholders don’t have either the mandate or the capacity to roll from a bond into a loan. However, Synlab’s FRN attracted a high portion of CLO accounts when it was issued in 2016, as the largest FRN since the financial crisis, and CLOs are able to do bond-to-loan exchanges.
“If you’re in a CLO that’s past its reinvestment period or has been stopped from reinvesting because of downgrades, a straightforward refinancing would cause problems because it would return proceeds to pay CLO liabilities,” said Steven Hunter, chief executive and founder of high-yield analytics company 9fin.
“But if you exchange a cashless roll in loan land, that CLO investor could go straight into the new deal and stay invested because the proceeds don’t come back to you.”
Non-CLO investors in the original floating-rate note will likely participate in any new bond instead of rolling into the new loan. As part of the transaction, Synlab is expected to raise up to €400m of senior secured high-yield bonds, which could come as soon as next week, to partially redeem any outstanding FRN.
Morgan Stanley is the mandated lead manager and sole physical bookrunner for the A&E, alongside bookrunners Goldman Sachs and Deutsche Bank.
Goldman Sachs is lead dealer manager for the FRN exchange, with Deutsche Bank and Morgan Stanley as dealer managers. (Editing by Claire Ruckin)