August 20, 2014 / 1:00 PM / 3 years ago

Paroc's portable bonds to aide sale

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 clause.


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 bondholders, however.

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 bond’s documentation.

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)

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