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B2Holding docs stretch HY boundaries
November 2, 2017 / 3:10 PM / a month ago

B2Holding docs stretch HY boundaries

LONDON, Nov 2 (IFR) - B2Holding has included what sources call an “unprecedented” term in the documentation for its new deal allowing the covenants to be reset if it gains a rating and issues another bond.

The term would allow the Norwegian debt purchaser and collector to overwrite the covenants on the deal it is currently marketing with the terms of the later transaction if it had previously received a rating from either Moody’s or S&P.

In that case, the original covenants “shall cease to apply and be replaced with the financial covenants included in the finance documents governing the qualifying debt,” according to the documentation.

Sources said they had never seen such a term in a major currency deal in the European high-yield market.

“The market convention is for issuers to either wait for old bonds with different, weaker, covenants to roll off and thus be superseded by the new docs, or to go out with a consent solicitation to amend the covenants in the old deal to bring them in line with the new one,” one portfolio manager said.

B2Holding is unrated, but expects a public rating by Q2 2018, according to a Q3 credit update presentation.

The company opened books earlier on Thursday for a €200m no-grow 5NC2 senior unsecured floater, setting guidance at three-month Euribor plus 425bp-450bp (wpir). IPTs earlier in the session were the mid-high 400s over.

The company has two floaters outstanding: a €150m 2020 (callable December 2018) and a €175m 2021 (callable October 2018). The 2020s are bid around 364bp over Euribor and the 2021s at plus 332bp, according to Thomson Reuters data.

The new deal comes with a 100bp coupon step-up if the company does not gain at least one rating within a year of the settlement date.

The portfolio manager said he hopes the post-rating deal refers to a refinancing of the current issue, although that issue was not addressed in the documentation.

“Otherwise, it would make your maintenance covenants pointless; ie, if the company incurs additional debt, then maintenance covenants no longer apply,” he said.

The documentation includes a covenant requiring B2Holding to maintain a leverage ratio no higher than four times prior to the rating assignment.

High-yield bonds typically come with leverage maintenance tests, which apply only when a company incurs additional debt or makes payments away from bondholders, while leverage maintenance tests are more typical of leveraged loan deals.

The deal was announced on October 25 and comes to market after a five-day roadshow.

Arctic Securities, DNB Markets and Nordea are joint leads.

Nordea was not immediately available to comment. Arctic Securities and DNB Markets did not respond to requests for comment. (Reporting by Yoruk Bahceli, editing by Natalie Harrison, Julian Baker)

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