* Unilabs cites volatile market conditions for decision
* Critics say high leverage was a major concern
* Banking sources say deal to be resurrected
By Robert Smith
LONDON, June 13 (IFR) - Swiss medical diagnostics business
Unilabs postponed a EUR685m three-part high-yield bond on
Thursday, citing unfavourable market conditions following a
sharp widening in spreads over the past three weeks.
The bond is the second European high-yield issue to be
pulled this year, after Polish broadcaster TVN cancelled a
two-part bond in March, and coincides with a 120bp widening in
the Crossover index to 490bp since May 22.
Market observers, however, said that credit-specific issues
had also hampered Unilabs, which would have made it a difficult
sell in any environment.
"The market isn't great, but I don't think this is a deal
that puts everything on hold as it was very aggressive," said a
high-yield syndicate banker, pointing to a new issue priced by
French retailer SMCP on Monday and another deal from Bakkavor
that priced last week after widening guidance significantly.
The pipeline is also relatively healthy, signalling that
issuers are not staying on the sidelines and may be prepared to
pay up for the higher volatility.
Cable and telecom investment firm Altice mandated Goldman
Sachs and Morgan Stanley as global co-ordinators on a EUR250m
10NC5 high-yield bond on Wednesday, and other syndicate bankers
have also said they may announce new issues in the coming days.
The banker cited Unilab's 6.6x total leverage as "very high
for this type of business", while another said the decision to
postpone the bond was not a complete surprise.
"I can't say I'm surprised. This deal had very few fans."
PULLED DESPITE REJIG
Unilabs' planned issue consisted of EUR510m senior secured
bonds, split into fixed and floating tranches, and a riskier
EUR175m second lien PIK toggle.
The postponement did come as a slight surprise, because
bookrunners JP Morgan (B&D), Lloyds, Nordea and SEB sent out
revised terms and price talk for the bond on Wednesday, which
suggested that there was some demand.
Final terms on the PIK had also been set, albeit at a hefty
yield of 13%, while guidance on the senior secured tranche was
set at 8.75%-9% on the fixed-rate and Euribor plus 650bp-675bp
on the floater.
"Although the book was just about over the line this morning
some investors started to get flaky," said a source close to the
"We were very concerned about how the deal would trade after
The bond's rejig saw initially proposed features such as
portability dropped, and covenants amended following pushback
"When we launched the deal portable bonds were pricing
without a blink, but after 10 days on the road the market has
turned dramatically," said the source.
One high-yield investor pointed out that Unilabs'
geographical diversification - unlike sector comparisons Labco
and Cerba, which are focused on their domestic market of France
- was not necessarily a supporting factor.
"Diversification is not necessarily a virtue," he said,
explaining that this is mainly because of the fragmented
regulatory regime for healthcare in Europe that makes it
difficult to achieve synergies.
Bankers and investors also said that the company has limited
ability to deleverage because of its strategy to grow the
business via acquisitions. Leverage tests were added to the
acquisition basket to head off these concerns.
Unilabs is owned by private equity firms Apax and Nordic
The source close to the Unilabs deal confirmed that the
company will be looking to return to market imminently, saying
"expect this as a few days delay, not a long term postponement."
The source also confirmed that the PIK toggle note will not
need to be remarketed, having received commitment letters from
hedge and mezzanine fund buyers drawn in by the double-digit
Pulled deals in the past have been resurrected with success,
so there is every chance the company would succeed when market
In July last year, Dutch engineering concern Stork, owned by
private equity group Arle, failed to attract enough demand for a
EUR315m issue at the 11.5% coupon and 2%-3% original issuer
discount (OID) offered at the time.
After restructuring the deal, joint bookrunners Goldman
Sachs and Jefferies, printed a downsized EUR272.5m 5NC2.5 senior
secured bond at 96.255 to yield 12%.