The European leveraged finance market has kicked into overdrive, with issuers able to access ample liquidity from the leveraged loan and high-yield markets.
Swiss alarm company Verisure, German low-cost hotel chain Motel One and UK supermarket operator Asda have crammed into the primary before year-end numbers go stale, enjoying demand levels across loans and bonds that were able to comfortably accommodate one of the busiest weeks since the start of the decade.
"These issuers have or are establishing large capital structures and so it makes sense to diversify across bonds and loans and create that pricing tension," said a high-yield investor.
"From what it looks like to me, most borrowers are finding the bonds side slightly cheaper than loans, but there is a lot of liquidity in both markets. The CLOs keep printing and honestly, for them, I really think credit is a secondary consideration – they just need the assets to put in the CLOs."
Verisure (B1/B+) marginally upsized its cross-format transaction to €1.05bn, as it priced a €525m term loan B and €525m six-year non-call two senior secured notes that will part-refinance an €800m TLB due in July 2026 and repay RCF drawings.
The loan, which matures in May 2030, priced at 350bp over Euribor, from 350bp–375bp at launch, with a 0% floor. The loan sold at par, from initial guidance of 99.5.
The bond landed at 5.50% at par, versus initial price thoughts in the high fives.
"Given the loan market is driven by CLOs, it creates a floor for the margin," said Arvinder Chowdhary, European leveraged finance portfolio manager at PGIM Fixed Income.
"The CLO maths make it harder to buy too many assets below 350bp margin, especially with current liability levels, and hence it creates a kind of floor around that margin. Unfortunately, there are no such dynamics in the bond market, so on a like-for-like basis loans have tended to be coming wider to bonds. If you can buy either the loan or bond and you can get 50bp–100bp more for the same credit risk, you will always take that.''
That differential was on show for Verisure.
"The pricing across loans and bonds is probably now getting to be flat for Single Bs," said a leveraged finance banker. "But when you get up towards Double Bs then you hit a pricing floor in loans so the difference there is much bigger. That is why someone like Verisure ends up something like 100bp tighter on the bonds side – the loan works out as about 6.5% if you swap it."
Bank of America was sole physical bookrunner on the TLB for Verisure and JP Morgan was sole physical bookrunner on the bond.
Mix-and-match
For issuers, the ability to mix loans and bonds means unlocking different pools of capital. Motel One (B3/B–/B+) raised €1.3bn from an €800m TLB and €500m seven-year non-call three senior secured notes to repay acquisition facilities funded on April 2 to finance the purchase of a minority stake in the company by One Hotels and Resorts, the investment group of founder Dieter Mueller.
"For Motel One, it is about getting both instruments in the structure so as to approach the widest group of investors," said the banker. "If the total deal is €1bn then you probably don't bother, but once it goes above that then you can have a proper bond size of €400m–€500m."
Motel One's covenant-lite loan matures in April 2031 and came at 450bp over Euribor with a 0% floor and 99 OID, the tight end of guidance, although the borrower had to make a number of lender-friendly document changes.
The bond priced at 7.75% at par, versus IPTs of 8% area.
Deutsche Bank and Morgan Stanley were global coordinators and physical bookrunners.
Super-sized
A different but bigger beast, arrived from Asda (B1/B+/B+), with its £1.75bn six-year non-call two bond that will be the second-largest sterling high-yield bond ever placed. The largest was also issued by the company, which in 2021 priced £2.25bn 3.25% February 2026s. The latest bond came at 8.125% compared to IPTs in the low to mid-eights.
Asda's transaction included an upsized €1.285bn TLB priced at 400bp over Euribor, from guidance of 400bp–425bp, with a 99.5 OID.
"Asda is very different to Verisure and Motel One as it's a massive sterling bond and a big euro loan – you just can't do a big sterling loan," said the banker.
The new issues, along with around £340m in cash on balance sheet, will repay Asda's €845m TLB due in December 2026 and partly take out the February 2026 notes and a £500m 4.50% tranche also due in February 2026.
"Asda is a tough one," said the investor. "I am not scared that we won’t get paid back but the documents are weak. They did a lot of work to preplace this, especially on the loans side, and the loan investors always let terrible documentation through and that has impacted the bond docs."
Walmart agreed to sell Asda in 2021 for £6.8bn to private equity group TDR Capital and Mohsin and Zuber Issa, the billionaire brothers who founded fuel station outfit EG Group two decades ago. Asda has declined to comment on media reports that Zuber Issa is looking to offload his 22.5% stake to TDR.
"You have TDR involved, and you know when TDR is involved there will be layers and layers of leverage above you, which is a worrying combination with poor docs," said the investor.
Barclays (lead-left/B&D), Deutsche Bank and JP Morgan are physical bookrunners and global coordinators on Asda's bond and in the same roles with HSBC on the TLB.