Italian recycled cardboard producer Reno de Medici is in the market with a sustainability-linked floater to back its buyout by private equity group Apollo.
Lead left bookrunner Barclays (B&D) has opened books on a five-year non-call one floating-rate bond (B2/B/BB-) with initial price thoughts of E+500bp-525bp. Leads are holding investor calls from Tuesday through to Thursday. The bond will be issued via Rimini BidCo.
Packaging credits usually pay a premium over other borrowers in their rating brackets, due to the cyclical nature of both the business and the raw materials involved.
Like many other European countries, Italy saw a wave of M&A activity during the first part of the year, with targets being snapped up at low valuations following pandemic lockdowns. Private equity sponsors, looking to put cash to work, were at the forefront of that activity. In Italy, such deals are usually financed via bonds rather than loans thanks to regulations around leveraged lending.
This year has seen Italian companies place €14.13bn in high-yield bonds to fund acquisitions, versus €5.4bn in M&A bonds for the whole of 2020, and €5.6bn in 2019.
More Italian M&A financing is on its way, said bankers. Dublin-based fintech group ION's buyout of Italian credit data and information group Cerved is also headed for the high-yield bond market with a deal that is expected to be over €1.5bn in size.
But the largest deal now in the pipeline is US private equity group KKR's €33bn buyout offer for Telecom Italia. If the deal goes ahead, it could be one of Europe's biggest leveraged buyouts.
Telecom Italia said in a statement published on Sunday that KKR had made an offer equal to €0.505 - valuing the company at around €10.7bn. The company has €20.35bn in high-yield bonds outstanding, according to Refinitiv data.
Bonds issued by Telecom Italia have dropped by nearly 10 points after the announcement, with the company's curve steepening significantly. Its 7.75% January 2033s were seen at 129.40 on Tuesday, down from 138.30 on Friday.
"Bondholders at the front-end seem to have a view that people will get paid back sooner or later regardless of the eventual structure, so those bonds haven't sold off on that basis," said one high-yield investor. "We're hearing that TI's 33s have been long held by retail, and a lot of retail has been panic-selling in secondary, so those bonds have sank."
Investors said that their outlook on Telecom Italia will depend on how the company's cap structure looks post-acquisition. Market rumour is that KKR would be looking to split the company into two.
"Telecom Italia has a lot of debt that it needs to roll frequently," said the investor. "KKR needs to leave it in a state where it can continue to access the market."
Still, the deal is a long way from the finish line, said bankers. Telecom Italia's largest shareholder, French media group Vivendi, has told newswires that it has no intention of selling its stake in the company. In addition, the Italian state holds a 10% stake in the company via Cassa Depositi e Prestiti - as well as having a so-called "golden power" which allows the government to block takeovers that are not perceived as being in the national interest.
"I wouldn't say the deal is done. It's a complicated transaction,," said one high-yield banker. "There is limited room for extra leverage, and I assume that if the deal went through it would be negative for the bonds."