November 2, 2017 / 5:44 PM / 2 years ago

UPDATE 1-B2Holding docs stretch HY boundaries

(Adds details on deal terms and analyst commentary)

By Yoruk Bahceli

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 the company gains a rating and issues another bond.

The term would allow the Norwegian debt purchaser and collector to overwrite part of 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.

“You’re building in a mechanism to alter key covenants, and potentially dilute the covenant protection, without bondholders’ consent,” said Shweta Rao, an analyst at Covenant Review.

The current documentation includes a covenant requiring B2Holding to maintain a leverage ratio no higher than four times.

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

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convention is for issuers to either wait for old bonds with different, weaker, covenants to roll off and thus be superseded by the new docs, or to go out with a consent solicitation to amend the covenants in the old deal to bring them in line with the new one,” one portfolio manager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

High-yield bonds typically come with leverage incurrence tests that 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 covenant packages between Nordic and non-Nordic European bonds are quite different, a key difference being that, often, Nordic bonds have maintenance financial covenants,” Rao told IFR.

Rao reckoned the issuer is building a sort of covenant package “bridge”.

“At the moment, we assume, it is primarily targeting Nordic investors, so it has to give them a covenant package they are comfortable with, i.e. including maintenance financial covenants,” she said.

“But, in the future, if it issues bonds in the European, non-Nordic market, which typically don’t have maintenance financial covenants, it wants to have the flexibility to drop the maintenance covenants in these bonds.”

Still, the documentation also includes an incurrence test to limit the amount of debt the company can take and dividends it can pay out following a post-rating bond issue.

B2Holding is unrated, but expects a public rating by the second quarter of 2018, according to a third quarter credit update presentation.

The company is looking to price a €200m no-grow 5NC2 senior unsecured floater at 425bp over three-month Euribor, with allocations to be released on Friday morning.

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 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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