Europcar Mobility Group is making this week a busy one in the European high-yield market by recent standards, becoming the second issuer to announce a new issue, following Biofarma on Tuesday.
Against a backdrop of strong demand for its services, Europcar is looking to raise between €150m and €200m to expand its fleet, through the sale of a 3% 4.5NC1.5 sustainability-linked senior secured mirror note. The deal will be the first test of investors' appetite for fixed-rate high-yield debt in the single currency since the market reopened last week.
As Covid-19 restrictions have eased, the French car rental company’s revenues have recovered. However, fleet supply has been limited by growing demand as well as a shortage of semiconductors. This also explains the timing of the deal and why the issuer decided not to hold back from the market to see if funding costs, which have risen sharply this year, might begin to fall or at least stabilise.
“Europcar wants to make sure they have the fleet in place to meet the demand they are seeing from customers for this summer period,” said a source close to the deal.
The terms of the note will mirror the issuer’s existing €500m 3% October 2026 SLB. That bond was bid at a yield of 4.25% on Thursday, according to Tradeweb. The new issue should be leverage neutral, with leverage equal to 1.3x as of December 2021, according to an investor presentation.
Europcar’s revenues are beginning to recover following the pandemic. For 2021, it posted revenues of €2.272bn, versus €1.761bn in 2020 and €3.022bn in 2019.
One high-yield investor said he viewed the transaction as a good way to play the travel and leisure industry reopening trade, with valuations in the sector still looking attractive in light of a recovery in earnings.
BNP Paribas is leading the deal, which is expected to be rated B1/B. Meetings are taking place from May 5 to 6.
Fewer emissions, more green vehicles
The bond's sustainability-linked structure contains two targets, one related to emissions and the other focusing on the number of green vehicles in the fleet.
To avoid a 12.5bp coupon step-up, the company must reduce average emissions to 93g CO2/km for cars and 144g CO2/km for vans by 2024. In 2020, those figures stood at 111g and 150g.
To not incur a second 12.5bp penalty, it must also ensure that 20% of its fleet consists of green vehicles by 2024. Europcar defines green vehicles as those emitting less than 50g CO2/km, and as of 2020 they accounted for 3.2% of the fleet.
A consortium led by VW is currently looking to acquire Europcar. The tender offer was announced in July 2021, with an offer price of €0.50 per share, and the transaction is expected to complete this quarter.