It is shaping up to be a busy week in the European high-yield market, with three new issues and a tap announced on Monday and one deal still in the public pipeline from last week, and if borrowers want to get deals done, they may have to stomach considerable premiums.
Rising rates and diving equity markets do not make for an issuer-friendly backdrop, especially given expectations of a high level of near-term new deal supply.
“New issue concessions are going to be elevated,” said one leveraged finance banker. “It is challenging to establish where the clearing level is for risk. The challenge in the secondary market is, with the amount of supply that is expected this week and next, people are going to look to the new issue market to generate alpha, which is going to drive new issue concessions even wider.”
While it could be argued that it might serve some borrowers better to try and hold back, a lot see it as more prudent to get their deals done, de-risk and move on, he added.
Italian football club Inter Milan is returning to the bond market to refinance debt through the sale of a €415m five-year non-call two senior secured that will be issued through Inter Media and Communication (mediaco).
This entity manages and operates the media, broadcast and sponsorship business of the parent FC Internazionale Milano (teamco).
Goldman Sachs is leading the issue, which is expected to be rated B+ plus by Fitch and is also expected to carry a rating from S&P.
The issuer will use the funding to refinance both mediaco and teamco debt, which includes a €350.8m bond maturity at the end of this year and the refinancing of a €50.8m credit facility.
“These types of deal can be interesting because they are quite new and people often run towards these sectors,” said a second banker.
“When people started doing these mediaco deals five or six years ago, you would be working with maybe 10 accounts, and it took them a long time to get comfortable. Now it feels like has its own little ecosystem and a lot people are talking about sports financing. They like that they can finance media rights rather than assets.”
Mediaco deals, such as Inter’s proposed bond, benefit from preferential recourse to media and commercial revenues, which can provide some insulation from operational risk.
“The cashflow waterfall at Inter Media gives investors a senior claim on pledged revenues that ensures payments are made to investors, and reserve accounts are funded, before any distributions are made to teamco,” wrote the analysts at Fitch.
Inter Media and Communication has two revenue streams: media, through which it generated €214.7m of adjusted revenues during the 12 months up to the end of September 2021; and sponsorship, through which it generated €74.3m during the same period.
Covid-19 has had a significant impact on Inter Milan’s finances. Revenues have been weighed on by no or partial fan attendance, while player wages have increased. Meanwhile, expectations are that international sponsorship revenue will also decline in the coming years.
Looking at Inter Milan’s consolidated credit profile, Fitch forecasts leverage of 21x in the club’s financial year 2023, falling to 9.5x the year after and 5.6x in 2025.
Acquisition financing
There were also a pair of acquisition-linked deals announced on Monday, the larger of which is the £675m-equivalent of euro and sterling five-year non-call two senior secured notes from True Potential, the UK financial services company.
Proceeds from the issue will be used to refinance its acquisition by the private equity firm Cinven.
Through its proprietary technology platform, True Potential provides advisory services, wealth management and investment strategies to its clients.
This week’s deal is being run by Credit Suisse and the notes are expected to be rated B1/B.
Nordic equipment hire company Renta is also in the market, sounding out investors for a €350m five-year non-call two senior secured, which is being arranged by JP Morgan.
The financing, in combination with a €310m equity contribution, will be used to pay for its acquisition by IK Partners and refinance a €200m senior facility.
There is also a €40m tap for the Nordic property maintenance company PHM Group being marketed by Nordea and Pareto Securites. The issuer is looking to add to its 4.75% June 2026s.