In a year dominated by volume and generally tight pricing, standing out from the crowd wasn’t easy.
But a debut issuer, which only a couple of years ago had to undertake a debt-for-equity restructuring, and whose business is in a sector that has been under the cosh, did just that.
Dutch DIY retailer Maxeda priced a €475m five-year non-call two senior secured bond issue in July, overcoming investor scepticism around retail credits in the process and paving the way for other European retailers to issue later in the year.
The company also had to convince investors that it had moved on from a restructuring in 2015 in which mezzanine debt was converted to equity and covenants were reset.
What marked out the deal further was that fellow Dutch discount retailer HEMA was also in the market in the same week. But while HEMA (rated Caa2/CCC) had to amend terms to push its deal over the line, Maxeda (B2/B–) encountered fewer problems.
It cancelled a proposed floating-rate note tranche and raised the entire amount through a single fixed-rate tranche. But that was down to investors’ preference for one liquid note offering and the fixed-rate structure. The non-call two also provided investors with more potential upside.
Accounts were clearly attracted by the yield on offer, which was needed given the company’s high leverage of about 5.4 times Moody’s-adjusted gross debt to Ebitda.
Price whispers were in the low 6s, with guidance then put out at 6.25% area for a par priced bond. The final yield was 6.125%.
Still, the deal significantly reduced Maxeda’s interest expense, according to Moody’s, with the proceeds going to repay outstanding bank debt ahead of time. It also meant that once those loan facilities are repaid, the company has no sizeable refinancing risks until the bonds reach maturity.
Like many high-yield deals over the past 12 months, Maxeda had an aggressive covenant package, a reflection of how hot and issuer-friendly the market has been.
The restricted covenant package, for example, included an unusual and off-market provision that would allow Maxeda to use value invested in unrestricted subsidiaries to pre-pay junior debt or return value to equity, according to an analyst.
But as one portfolio manager whose fund bought the Maxeda bonds said, if accounts stepped away from deals that had aggressive covenants, there would be nothing left to buy.
The bonds have since rallied by more than two points, to trade at a bid yield of 5.33% at the time of writing. Goldman Sachs was lead-left, while ING and ABN AMRO acted as bookrunners.