Issuers vie with Worldpay for investors' attention

5 min read
Lorena Ruibal

Amid the excitement of Worldpay's LBO financing, the European high-yield market has also had a series of other transactions to contend with this week, including a tap and some refinancing transactions.

Worldpay's deal is due to price on Wednesday, with leads announcing on Tuesday 7.50%-7.625% price talk for the US$2bn January 2031 non-call three senior secured notes and 8.50%-8.625% for the £700m tranche. Initial price talk had been in the high 7s and high 8s respectively.

Ahead of Worldpay's pricing, German pharmaceutical Cheplapharm Arzneimittel (B2/B+/B+) completed a €300m tap of its senior secured notes maturing in May 2030 at 100.50, equivalent to a yield-to-maturity of 7.401%. The firm had initially envisaged to raise the targeted amount through taps of both its fixed and floating-rate notes due May 2030, rated B2/B+/BB–.

It had released initial price talk on Monday of 100bp area (plus or minus 0.25 point) for both the €425m 7.5% fixed-rate notes and the €325m three-month Euribor plus 4.75% floating rate bond. Pricing was then updated on Tuesday for both bonds to 100.50 (plus or minus 0.25 point), with a minimum size for the fixed-rate leg at €250m. A subsequent announcement said the FRN was dropped, with the entire amount to be raised through the fixed-rate bond.

"They would want to do more in the fixed [portion] anyway if they think rates are going to get worse," said one leveraged finance banker away from the deal.

He thought the decision to minimise the size of the floating-rate leg, and eventually withdraw it, would be unrelated to the state of the European loan market, which has been supported by strong CLO issuance in September.

One euro high-yield investor noted the company's appeal emanated mainly from its non-cyclical nature, yet he was also wary of Cheplapharm's business model.

Rather than developing drugs in-house, the company acquires intellectual property rights for legacy or niche branded off-patent products from large multinational pharmaceutical companies through transitional service agreements (TSA), which means it requires frequent acquisitions to operate and maintain growth.

The original €750m senior secured dual-tranche bond was issued on April 26, with proceeds from the transaction, together with cash on hand, a revolving credit facility drawdown and a vendor loan being used to buy Zyprexa, an antipsychotic medication, and pay transaction-related fees and expenses. At the time, the company was able to squeeze the OID on the floating-rate note and offer a very thin premium across the whole transaction.

The company said that proceeds from the tap will be used for general corporate purposes as well as pay transaction-related fees.

JP Morgan (B&D) was joint global coordinator and bookrunner alongside Deutsche Bank.

Construction risk

As well as Worldpay, Italian construction company Webuild (BB/BB) is also set to price a bond on Wednesday, albeit in euros. It is planning a €400m five-year senior unsecured note via Bank of America, BNP Paribas, Goldman Sachs, HSBC, IMI - Intesa Sanpaolo, Natixis and UniCredit following a two-day roadshow.

Initial price thoughts are in the low 7s. Proceeds from Webuild's deal will be used for repayment of existing indebtedness, including a concurrent tender offer for its €500m 1.750% notes due October 2024 and €750m 5.875% notes due December 2025.

One investor, however, was giving the deal a miss. He said that pure construction companies "have a terrible track record" in the market.

"You have cancellations, contract overruns, all these things that run the risk of making your business fall over, because working capital is so volatile," he said. "Webuild has outperformed versus expectations, but it’s still not exactly an easy story – you have inflation risk, contract risk, non-payments risk, high gross leverage, legacy litigation and so on. I am passing."

Swedish shipping conglomerate Stena AB is the other potential issuer in the European market. It has been meeting investors since Monday to gauge appetite for senior secured notes in euros and/or dollars maturing between five to eight-years, including the potential tap of its senior secured notes due 2028.

The proceeds of this new bond issue will be used to redeem its senior secured notes due 2025. The company expects to repay its senior notes due 2024 at their maturity through available liquidity.

"They've left their options open, haven't they? They're looking for anybody and everybody," the banker said, adding that leads are probably trying to see where demand comes from in terms of the currency options too. He noted that firm is the largest privately-owned company in Sweden, so he didn't expect leads to struggle to get a deal over the line.

The company last tapped the market on February 1, when it raised €325m through five-year non-call two senior secured notes that priced at par to yield 7.25% to tackle senior secured notes maturing in 2024.

(Additional reporting by Robert Hogg)