5 Min Read
* Dividend deal relaunched after October failure
* Structural tweaks made to appease investors
* Brazilian exposure flagged as a concern
By Robert Smith
LONDON, Feb 8 (IFR) - Apollo Global Management has resurrected its attempt to raise a payment-in-kind bond at Verallia, making a series of concessions to win over investors that snubbed the deal last time around.
On Wednesday Verallia revived the abortive trade, targeting a smaller €350m five-year non-call two PIK toggle deal and halving the proposed dividend to €280m. US private equity giant Apollo owns 90% of Verallia and BPI France holds the remaining 10%.
Pricing is slated for later this week, after investor meetings on Wednesday and Thursday, and two investors told IFR they expected the deal to price with an eight-handle yield via joint global coordinators - Credit Suisse, Barclays and Goldman Sachs.
In October, the French glass bottle maker's shareholders tried to strip €490m out of the business through a dividend, funded with a €500m five-year non-call one PIK toggle at a deeply subordinated holdco.
Credit Suisse was the sole global coordinator on that deal.
High-yield bond investors balked at the size of the proposed shareholder distribution, however, particularly as it followed hot on the heels of a previous €230m debt-funded dividend. The two payments combined would have outstripped the €578m of equity Apollo and BPI France contributed to Verallia in its 2015 LBO.
These concerns were compounded by jitters around Verallia's ability to service the PIK's coupons in cash, resulting in one of the most high-profile failed deals in the European high-yield market last year.
While Verallia never set formal price talk on its October deal, sources told IFR at the time that whispers also began at eight-handle yields, before drifting as wide as high-9% as the trade fell apart.
"Maybe I'm being cynical, but I could see them trying to get it back up to the original €500m if everyone piles in," said one investor.
A source close to the deal said no further shareholder distribution was expected "for a long period of time", however, adding that a dividend blocker meant the notes "cannot be upsized after closing".
Several investors said that the relaunched deal had been widely expected, noting that while Verallia's existing bonds tanked on the first deal's announcement, prices were little changed on Wednesday.
"It's not a surprise given how strong the market is; the bankers have been trying to revive it all year," the first investor said.
"They've been looking for the reverse order pretty much as soon as it failed. And they said at the time they weren't that far off doing a deal that looked like this."
The source close to the deal said banks had received "large numbers of reverse enquiries" on a revived PIK deal.
IFR reported in October that banks running the deal sounded out investors on potential "structural tweaks", before throwing in the towel completely.
To assuage investor concerns around debt-service capacity, Verallia has earmarked €60m of the new deal's proceeds to fund an interest reserve account, which it estimates will result in around €113m available for debt service.
On the initial deal there was no such account and just €35m estimated available for debt service, which would have only covered one semi-annual coupon payment on the PIK note.
A second investor noted that a default at Verallia's Brazilian joint-venture last month could drain some of its available cash, however.
Verallia's subsidiary SG Vidros has a 27% stake in IVN, which failed to repay loans to banks on January 31. SG Vidros has guaranteed €44m of IVN's loans and has made €16m of shareholder loans to the Brazilian company.
"The shareholder loan would be a write-off of equity, but the €44m could be a cash outflow," the investor said.
"If the PIK comes in the mid-to-high eights I might play it though. I do think you're covered on the equity - they're talking 4.8x leverage and this is a business that should trade at no less than 6x even in a bad market."
The source close to the deal said investors had raised "no specific concerns" around the Brazilian JV risk.
The PIK's expected credit rating is CCC+ from S&P. (Reporting by Robert Smith, editing by Alex Chambers)