June 25, 2019 / 3:52 PM / 5 months ago

Two portfolios hit Europe’s secondary loan market

LONDON, June 25 (LPC) - Two big portfolios of loans and bonds from ICG and CSAM hit Europe’s secondary loan market this week as investors seek opportunistic cash raises to invest in higher yielding paper, banking sources said.

The portfolios were being sold via Bids Wanted In Competition (BWIC) auction processes, with bids due on ICG’s €202m-equivalent portfolio on June 25 and on CSAM’s €150m-equivalent portfolio on June 26.

ICG’s BWIC had an average bid of 99.9%, while CSAM’s has an average price of 99.6% on the loans, according to LPC data.

ICG and CSAM were not immediately available to comment.

Despite an abundance of cash in the system, pricing on Europe’s primary loan market has widened this year given the uncertainty and volatility in the wider markets, making new deals more attractive on a relative basis compared to a number of existing deals.

High-yield bonds are also more attractive on a relative basis currently, prompting some investors to sell out of loans to buy up notes.

Investors are therefore looking to free up cash by selling out of lower yielding paper and BWICs offer a way to show best price execution.

“Loan prices are at high level. CLO issuance is up but loan supply is down. Secondary prices are elevated so selling out at par-101 and buying at 99-99.5 might be the trade to be doing,” an investor said.

There is expected to be a number of new deals come to the market between now and September that investors will want to be in.

They include a jumbo SFr5.4bn-equivalent (US$5.4bn) financing to back a sale of Nestle’s Skin Health business and an approximate €1bn-equivalent leveraged loan backing a take private of car auction group BCA Marketplace.

There are several other event-driven financings and dividend recapitalisations expected.

However, new paper is still limited and not enough to satisfy investor appetite, given there is so much cash in the system, especially with a number of CLO warehouses.

Last week, a €300m seven-year term loan B for French private hospital group Vivalto Sante was around 6.0-6.5 times oversubscribed, meaning leading banks had an order book totalling around €2bn.

That led to two pricing flexes to reduce interest margins within the space of a day after the first reduction in pricing did little to cut demand.

Despite strong demand, it is uncertain how much of the BWIC will trade. If the sellers don’t get a high enough price, they could decide not to sell, sources said.

“It will be interesting to see how much of the BWICs trade, maybe somethings wont and the best will be cherry-picked. It could be a pricing exercise to work out value,” the investor said.

Some of the larger positions in ICG’s BWIC include €13.2m of business and accounting software provider Exact; €12.2m of European vacation rental business Wyndham; and €11.5m of reusable packaging provider IFCO.

Some of the larger positions in CSAM’s BWIC include €6.5m of telecom business Matterhorn; £5m of cable operator Virgin Media; and €5.2m of Luxembourg-based satellite TV business M7. (Editing by Christopher Mangham)

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