TwentyFour Asset Management
2020 was a remarkable year in many ways, and perhaps nowhere more so than in the high yield market. With record amounts of monetary and fiscal stimulus driving down default rates, the recessionary environment provoked by the pandemic actually became an attractive issuance window for high yield borrowers, leading to record amounts of issuance across Europe and the US.
This was particularly evident in the second half of the year, with Q4 delivering the third highest quarterly supply total ever in European high yield, taking 2020 gross issuance past the €100bn mark and slightly ahead of 2017’s bumper year.
With COVID-19 infection rates rising across Europe and governments battling to roll out the various vaccines, we were interested to see how investors would react to the primary market opening in the new year, particularly given an expected pipeline of multi-billion euro deals.
The first of these deals was announced on Wednesday, with Verisure looking to undertake a €4.6bn refinancing of its capital structure and pay a €1.6bn dividend to its private equity sponsor H&F, which has reset its investment horizon by repurchasing the business in a new fund. The refinancing includes a €1.27bn CCC+ senior unsecured tranche (split between EUR and SEK) that is currently multiple times oversubscribed.
In addition to Verisure, Ineos Quattro and Asda are expected to hit the market in the coming weeks.
Ineos has acquired the aromatics and acetyls business of BP and intends to combine these with a number of its existing businesses to create a chemicals giant that will generate an estimated annual revenue of over €13bn and EBITDA of €1.7bn. The company is in the process of financing half of the acquisition with a €2.6bn loan deal, but has today launched the bond package, looking to raise €2bn across EUR and USD secured and unsecured tranches.
Another well flagged deal is of course Asda, following the announcement last year of the acquisition of the business from Walmart by the Issa brothers of EG Group and TDR Capital. Given the history of EG Group we would not be surprised if the £6.8bn acquisition price was almost entirely debt funded, an interesting test for the sterling high yield market given supply there lagged behind Europe and the US during 2020.
So for high yield issuers 2021 has started in a similar vein to 2020, with the technical backdrop providing an attractive environment for capital raising. These three deals are likely to be some of the biggest and highest profile prints of the entire 2021 calendar, so it will be very interesting to gauge the volume and diversity of demand, particularly in the UK names and specifically the sterling tranches, which tended to lack broad international sponsorship in the run-up to the Brexit deal.