November 4, 2011 / 12:26 PM / 6 years ago

DEAL REVIEW: Faurecia debut survives high-yield storm

LONDON, Nov 4 (IFR) - French car parts maker Faurecia delivered a shot of confidence to European high-yield players on Thursday, reopening the primary market to debut issuers in one of the most volatile weeks of the year and drawing strong demand from investors.

The iTraxx Crossover has swung in wide ranges this week, hitting 760bp on Thursday, before recovering to around 670bp by Friday after Greece retracted its referendum plans and the European Central Bank unexpectedly cut rates.

Although the timing of the bond was not ideal, it shows that investors will put cash to work as long as issuers are prepared to pay up.

Ba3-rated Faurecia increased the size of its five-year inaugural deal by EUR50m to EUR350m after drawing demand of EUR1.4bn from 225 accounts, dominated by the UK, and followed by French, Swiss, German and U.S. accounts. Around 75% of the book was taken up by asset managers, pension funds and insurers.

The bond, which pays a 9.375% coupon, jumped three points in secondary markets to 102.5 bid on Friday, after pricing at 99.479 in line with guidance to yield 9.5% on Thursday via joint bookrunners BNP Paribas, Credit Agricole, Natixis and Societe Generale.

“It was a rollercoaster week in the markets, but the successful placement of the bond is a real testament to the company,” said Youssef Khlat, global head of high-yield capital markets at Credit Agricole, a global co-ordinator on the deal along with Natixis.

“Faurecia’s management has demonstrated a strong track record and outlined a clear strategy for the business. The financing also has a very defensive use of proceeds.”

Although Faurecia is a cyclical business, it has staged a strong turnaround since 2008 when it breached its loan covenants, and leverage is relatively low with a net debt-to-EBITDA ratio of 1.19 at the end of June.

The bond, executed in conjunction with a new syndicated loan facility, will refinance a EUR250m loan that parent Peugeot was forced to put in place three years ago when four banks backed out of lending to the company.

The bond is also part of the company’s well-publicised plans to diversify its funding sources away from banks and follows its fund-raising in the schuldshein market the previous week.

WEDGING THE DOOR OPEN

The deal also marks the first publicly-sold benchmark high-yield bond since September, when German construction company HeidelbergCement priced a EUR300m seven-year issue, and the first debut issuer since July when Capsugel and Italy-based Bormioli priced deals.

Faurecia’s bond priced around 200bp higher than sector rival Ba3-rated Continental’s 6.5% EUR625m 2016 bond, but leads noted that the German company is not only much larger in terms of revenue, but also a well-established high-yield issuer.

But it came at roughly the same level as Ba2-rated HeidelbergCement’s 9.5% September issue which yielded 9.625%.

One of the leads estimated that Faurecia paid approximately 50-75bp more than it might have done, had stable market conditions on Monday, when the deal was announced, prevailed.

“Everyone went into battle feeling very good about the deal on Monday, and then unfortunately the market turned dramatically on Tuesday,” said another syndicate official involved in the deal.

“But the company was very focused, it wanted to set up its maiden high-yield bond, so told its story and listened to investors.”

At the pre-sounding stage last week, the bond was marketed with a non-call three structure, but that was changed to non-call life at the official launch after feedback from investors. Final price talk was also slightly above the tentative high-8%, low-9% sounded before the roadshow.

Reporting by Natalie Harrison, IFR Markets

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