LONDON, Aug 20 (IFR) - Portability language in Paroc's
high-yield bonds will help the Finnish insulation firm's owners
in their renewed efforts to sell the business.
Paroc is chiefly owned by European banks that took over the
company in a 2009 restructuring, and they accepted first round
bids from a clutch of private equity firms earlier this month.
The company raised EUR430m of senior secured high-yield
bonds in May that included a portability clause, which will make
the business more attractive to these potential bidders. The
clause allows debt to stay in place after a change in ownership,
lessening the need for potential buyers to raise fresh debt.
As such, the private equity bids come as no surprise to
high-yield bond investors.
"It's owned by a group of banks that want out, and they made
clear that the deal was structured to facilitate a quick exit,"
said an investor who attended meetings with management in May.
Paroc's bond left the company with 5.2x total debt to
adjusted Ebitda, and the clause allows the business to be sold
in the first two years if this leverage threshold is not
exceeded. This means prospective private equity buyers will not
able to load more debt on the company if they want to use the
For Paroc's bondholders, however, the clause means they have
seen little benefit from the news that a sale is in the works.
Without portability, a new owner would have to repay the
debt at a cash price of 101 or pay bondholders enough to
convince them to waive the change of control clause. Paroc's
portability features erase these potential upsides for
While this is less crucial for bonds that are performing
well, the company's 6.25% 2020 fixed rate bond is trading
substantially below par, bid at 98 on Wednesday morning
according to Tradeweb. This is barely up from the 97.40 low seen
on August 11, despite news of the fresh bids and European
high-yield's recovery from the recent sell-off.
The paper was bid as high as 104 in June, and the investor
said that the company's Russian exposure could explain why the
bond has nosedived in the secondary market.
Russia accounted for 8.3% of Paroc's revenues last year and
it is ramping up production there this year. The company has
spent millions on a manufacturing facility in Tver, which began
meaningful production in January, and it is considering detailed
plans for building a second facility there, according to the
When the bond was issued, Paroc also said that it expected
to purchase half of its coke from Ukrainian sources in 2014. It
also intended to supply its Russian business solely with
Ukrainian coke, primarily from Kharkiv in eastern Ukraine.
Kharkiv neighbours the Donbass region where clashes with
pro-Russian separatist have been fierce.
(Reporting by Robert Smith)