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With recent economic growth in Southern European seeing an increasing number of high yield issuances in Spain and Italy, Greece and Portugal are soon expected to join this spurt of activity as a result of sovereign upgrades in their respective credit ratings, according to Ashurst's Q3 Euro high yield bond market report just issued.

The report, looking at recent trends, focuses on high yield bonds issued by corporates from Italy, Greece, Spain and Portugal.

High yield partner Tamer Bahgat said that the Italian high yield market exploded over the summer months, with six deals pricing between June and August and one deal pricing in September.

"By year-end 2016, Italy represented 17.2% of European high yield issuances, however, we expect Italian bond issuances by year-end 2017 to surpass this proportion."

The report also showed that in Italy over the last 12 months:

  • Issue size varied from EUR 200m (Gamenet) to over EUR1bn (SNAI)
  • A number of issuers with modest EBITDA were able to successfully market their bonds and negotiate good market terms: as low as "adjusted EBITDA" of EUR 50m in the case of Marcolin and "adjusted EBITDA" of EUR 68m (or unadjusted EBITDA EUR 43m) in the case of Almaviva
  • Approximately two-thirds of the deals were sponsor-backed
  • The highest reported leverage was 5.5x (Limacorporate)
  • National banks were involved in each deal, with at least one of Unicredit, Mediobanca, Banca IMI or Unione di Banche Italiane acting as an underwriter on each transaction
  • One PIK Toggle deal came out of Italy this year (ICBPI) pricing at 7.125%

"Unlike the rest of Europe where BB-rated issuances still dominate the market, every Italian high yield deal that priced in the last 15 months has been single B. We believe this trend will soon spread to other markets as more single B credits come to market. FRN deals constituted over 50% of all recent deals in Italy, which is noticeably higher than in the broader European market, where they remain a minority," Tamer added. 

High yield counsel Natalia Sokolova said that as a result of the general uptick in the Greek economy and the ratings increase to 'B-', outlook positive in August, an increased number of Greek issuers were expected than in recent years.

The report highlighted that on the heels of the sovereign rating upgrade in September, the Greek-based group Intralot priced its single B rated EUR 500m 5.25% senior unsecured notes due 2024 at par.

"Although the general covenants remained the same, the deal was very well received by the market - it was upsized, priced at the low end of the pricing guidance, with books over 3x oversubscribed," Natalia Sokolova commented. 

Over the last year, the following trends in Greek deals were highlighted:

  • Issue size varied from EUR 250m (Titan Global, Wind Hellas, Intralot, 2016) to EUR 500m (Intralot, 2017)
  • Issuer's EBITDA was as low as EUR 92m (Wind Hellas)
  • Similar to the Italian issuers (but unlike the rest of the European high yield space), the Greek issuers also tend to be single B rated (or even unrated/private placements)
  • Most issuances were made through an English plc entity (opting for a holding structure in a jurisdiction that the investors are familiar and comfortable with)
  • There were no sponsor-backed deals; all issuers were either publicly listed on the Athens Stock Exchange, widely held, or family-owned
  • In all deals, proceeds were used for refinancing purposes, with the exception of Intralot, 2017, which took advantage of favourable market conditions to pay off the more expensive notes from last year and kept the rest on the balance sheet
  • The highest reported leverage was 3.1x (Intralot)
  • Most of the bonds are unsecured (possibly because it is generally difficult to enforce security in Greece)

Commenting on the Spanish market, Tamer Bahgat said: 

"It's safe to say that the slump caused by the downturn in the Spanish economy and high-profile restructurings of the Spanish issuers such as Abengoa and Codere is coming to an end, subject to the market uncertainty potentially caused by the Catalonia referendum. A resurgent Spanish economy, coupled with Spanish banks cutting costs aggressively in their search for deals, is creating significant activity in the market."

Ashurst noted that most recently, in September, the Spanish retailer Cortefiel issued EUR 600m of notes split between the fixed and floating rate tranches, with the notes receiving an enthusiastic reception in the market, pricing tighter than official price talk and the non-call period on the fixed rate tranche being reduced by one year to non-call two.

Tamer Bahgat said that although there have been no new Portuguese high yield issuances since 2015 and most existing Portuguese issuers are concentrated in the TMT sector, that is expected to change.

"The country's economy has been on the upward trajectory, which culminated in September with an upgrade for the sovereign credit rating on the Republic of Portugal to 'BBB-/A-3' from 'BB+/B' with stable outlook. This is a jurisdiction to watch."

Ashurst made the following observations about Spanish deals in the last 12 months:

  • Issue size varied from EUR 232m (Naviera Armas) to EUR 1bn (Grifols)
  • Issuer's EBITDA was as low as EUR 55m (Naviera Armas)
  • The majority of the deals were sponsor-backed deals (backed by the likes of CVC, Permira, Ardian, Silver Point); the remaining issuers were for the most part family-owned
  • All the deals used proceeds for refinancing
  • The highest reported leverage was 4.7x (Grifols)
  • A PIK Toggle deal (Allfunds) priced in July at only 4.125% (cash interest)/4.875% (PIK)

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