Refi risk flares in European high-yield market

Eleanor Duncan
Several high-yield borrowers could face an uphill battle to refinance upcoming debt due to the coronavirus curtailing appetite for risk, with CMA CGM, Vallourec and Codere among the credits highlighted by investors and analysts.
The trio all need to push out near-term maturities this year and next and have seen their bonds tank in secondary.
Investors told IFR it’s too early to talk about a spike of defaults among companies because of the coronavirus.
But after a record start to the year for European junk bonds with the market seemingly open to all-comers, and a rush of refinancings, borrowers with debt needs must be « kicking themselves », said one investor.
« Most investors will act rationally around this event but still – what we’re seeing is somewhat unprecedented, » said Martin Horne, head of global public fixed income at Barings.
« We have not [ever] had supply chain disruption in quite this fashion. »
Still, he said that companies may only find themselves shut out of the market « if the business was perceived to be structurally weak or in trouble before this event ».
Spanish gaming company Codere has €500m of euro debt coming due in November 2021. Over the past two weeks those bonds have dropped by more than 10 points, according to Tradeweb.
Codere was already perceived as a risky credit, having issued two profit warnings in 2019, and on February 28 reported weak fourth-quarter results with Ebitda dropping 18.3% year-over-year.
Its 6.75% November 2021s were bid around 81 on Friday. The bond had been trading at 97.50 in January.
In Italy, the company saw revenue collapse by 14% in the last two weeks of February compared to the first two weeks of the month, thanks to coronavirus fears.
« We believe coming quarters will continue to be challenging, making the 2021 bonds refinancing highly uncertain, » wrote Spread Research analysts.
Lucror Analysts agreed, writing: « The Covid-19 situation, if not contained in Europe, could further pose a risk to the outlook and the company’s ability to refinance the bonds. »
After dropping over five points the week prior, CMA CGM’s bonds were up slightly last week as the investment-grade primary market opened up to new issues again.
However, the French shipping company’s uncertain path to refinancing is highlighted by the fact its various bonds are still trading well below par.
CMA CGM’s 6.5% July 2022s were bid at 74 on Tuesday, down from a high in January of 97.75.
Its 5.25% Jan 2025s were bid at 64, down from a January high of 88.
The company has two big maturities coming up: a €725m 7.75% January 2021 and a €650m 6.5% July 2022. It held a number of meetings with investors earlier this year until anxieties over coronavirus took hold.
Elsewhere, French steel pipe maker Vallourec’s bonds were down last week on worries that the coronavirus outbreak will put an upcoming rights issue at risk.
« The logical reason [for the drop] is that investors have increased doubts over the rights issue, » said one bondholder.
Vallourec announced after full-year earnings on February 19 that it would target €800m in a fully underwritten rights issue to strengthen its balance sheet.
« We believe that a heady drop in Vallourec’s share could make the capital increase difficult to execute, » wrote Spread Research analysts last Monday.
The company’s share price has dropped over 40% since the beginning of the year.