Cirsa, Thom sprint to the finish line
Spanish gambling firm Cirsa and pan-European affordable precious jewellery company Thom accelerated their refinancing trades on Tuesday, as cash-rich high-yield investors jumped on the opportunity to put money to work.
"There's been hardly any net new money supply. All [leveraged] loans have been refis, reprices, a tiny bit of new money but quite a lot of repayments, and on the bond side it's largely been refinancings as well, so there's strong appetite across both [floating-rate and fixed-rate] markets," said one senior leveraged finance banker.
Cirsa Finance International (B2/B+) upsized its dual-tranche offering by €50m to €650m off the back of strong demand, printing a €450m 5NC2 fixed-rate senior secured note at par to yield 6.5%, the tight end of revised talk of 6.50%–6.75%. A minimum size of €350m had been set.
The Blackstone-owned firm also raised €200m via a tap of its Euribor plus 450bp July 2028 FRN, callable in July 2024, pricing at 101.25, the tighter end of 100.75–101.25.
The bigger fixed-portion was determined by the company's investor base.
"Cirsa has historically been more of a fixed-rate name, so I suspect the order book is weighted to that," said the banker. "It's probably less a CLO name than some FRNs given the sector in the country, but otherwise it's generally pretty well supported by a wide range of investors."
The trade was also boosted by a rating upgrade to B+ from B from S&P during marketing, reflecting "Cirsa's strong operating performance and market share gains, leading to a projected decrease in leverage", the agency wrote. Moody's also revised the outlook on its B2 rating to positive.
One long-term investor in Cirsa said people had "utterly misunderstood the name and just realised it's a great business, generating investment-grade-style income but with a high-yield balance sheet; and no exposure to macro or consumer risk".
Proceeds from the deal will be used to refinance €390m fixed-rate notes due May 2025; the partial repayment of €43m in the 10.375% senior secured notes due November 2027; and partially repay €150m in the euro secured PIK toggle notes due October 2025; as well as pay related transaction fees and expenses.
The partial refinancing of the outstanding PIK note came as a surprise to some analysts.
"While the €390m 2025 SSNs were expected to be refinanced in 1Q24, the partial redemption of the PIK notes – which would leave €356m outstanding for an eventual like-for-like PIK refinancing – comes as a bit of a surprise, and potentially rules out a near-term IPO exit for the sponsor, Blackstone," wrote CreditSights analysts.
The analysts said an IPO would have "obviated the need to pay down" part of the €400m October PIK, which has an accumulated balance of €506m including the PIK'd interest, "as the listing proceeds would have been used to redeem them".
The investor found the lower probability of an IPO as comforting, saying that "Blackstone shouldn't be considering exiting the investment but buying smaller companies to continue to grow the business".
The banker noted that paying down a portion of the PIK reduces Cirsa's total cost of debt and it had the ability to do it.
CreditSights analysts noted the €150m repayment of the 2025 PIK notes would save the company some €11m in annual cash interest payments and that the company is expected to undertake a like-for-like refinancing of the remaining €356m outstanding, likely later this year.
Last week, United Group refinanced a €300m PIK note, after over two years of no such issuance in the broadly distributed market.
"It's interesting certainly to see PIKs coming back. They are a good market product, but for the moment we're just repaying some of it, not redoing the whole thing," the banker said, adding that "generically, there is appetite for PIKs in the market, as United [Group] showed".
Deutsche Bank is (B&D), physical bookrunner and also joint global coordinator and joint bookrunner alongside Barclays, BBVA, Jefferies, UBS.
Tight Thom
Investors were also attracted to the other Single B company in the market, Thom, despite what looks like very tight pricing.
The retail firm, via issuer Goldstory (B2/B+), pushed through with an €850m dual-tranche sustainability-linked senior secured offering, comprising a minimum €350m 6NC1 FRN and minimum €350m 6NC2 fixed-rate bond.
Initial price thoughts for the fixed-portion were set in low 7s, while on the FRN it was 425bp–450bp over Euribor and a 99.50 OID.
"Pricing [at IPTs] was very tight. The business has performed well in the past but the sponsor has already taken a lot of money out of it," said a second high-yield investor, noting that his firm looked into the offering but passed on the grounds of valuation and sector.
Some investors had expected the borrower would need to offer some sort of premium attached to retail. Also, in a bold move, the French firm included in the use of proceeds a €174m dividend distribution to its shareholders, alongside the repayment of its 2026 SSNs in full and the redemption of €30m of a vendor loan to majority shareholder Altamir.
"We'll see more dividend recapitalisations. [Investors] will be willing to support the right borrowers to do dividend deals," said a second leveraged finance banker.
In addition, the super senior revolving credit facility was upsized to €120m from €90m as part of this transaction, said Moody's.
BNP Paribas (B&D on FRN) and JP Morgan (B&D on fixed) are joint global coordinators and physical bookrunners. ING and Societe Generale are joint bookrunners.